Hedge Funds Are Betting On Oak Street Health, Inc. (OSH)

·6 min read

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Melvin Capital's recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Oak Street Health, Inc. (NYSE:OSH).

Oak Street Health, Inc. (NYSE:OSH) investors should be aware of an increase in support from the world's most elite money managers in recent months. Oak Street Health, Inc. (NYSE:OSH) was in 33 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 34. There were 31 hedge funds in our database with OSH holdings at the end of March. Our calculations also showed that OSH isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Dmitry Balyasny of Balyasny Asset Managemnet
Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now we're going to analyze the latest hedge fund action regarding Oak Street Health, Inc. (NYSE:OSH).

Do Hedge Funds Think OSH Is A Good Stock To Buy Now?

At second quarter's end, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from the first quarter of 2020. By comparison, 0 hedge funds held shares or bullish call options in OSH a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

Among these funds, Redmile Group held the most valuable stake in Oak Street Health, Inc. (NYSE:OSH), which was worth $134.9 million at the end of the second quarter. On the second spot was OrbiMed Advisors which amassed $77.8 million worth of shares. Route One Investment Company, Holocene Advisors, and Iron Triangle Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Iron Triangle Partners allocated the biggest weight to Oak Street Health, Inc. (NYSE:OSH), around 3.23% of its 13F portfolio. Redmile Group is also relatively very bullish on the stock, dishing out 2 percent of its 13F equity portfolio to OSH.

Consequently, specific money managers were breaking ground themselves. Renaissance Technologies, created the largest position in Oak Street Health, Inc. (NYSE:OSH). Renaissance Technologies had $13.7 million invested in the company at the end of the quarter. Ray Dalio's Bridgewater Associates also initiated a $13.5 million position during the quarter. The other funds with brand new OSH positions are Dmitry Balyasny's Balyasny Asset Management, Ken Griffin's Citadel Investment Group, and Frank Fu's CaaS Capital.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Oak Street Health, Inc. (NYSE:OSH) but similarly valued. We will take a look at Aluminum Corp. of China Limited (NYSE:ACH), The J.M. Smucker Company (NYSE:SJM), Continental Resources, Inc. (NYSE:CLR), Alliant Energy Corporation (NASDAQ:LNT), FMC Corporation (NYSE:FMC), New Oriental Education & Technology Group Inc. (NYSE:EDU), and Avalara, Inc. (NYSE:AVLR). This group of stocks' market valuations resemble OSH's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ACH,4,8000,1 SJM,34,580514,1 CLR,23,172410,0 LNT,16,70771,3 FMC,33,372160,1 EDU,39,590421,-6 AVLR,29,1031140,-12 Average,25.4,403631,-1.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.4 hedge funds with bullish positions and the average amount invested in these stocks was $404 million. That figure was $561 million in OSH's case. New Oriental Education & Technology Group Inc. (NYSE:EDU) is the most popular stock in this table. On the other hand Aluminum Corp. of China Limited (NYSE:ACH) is the least popular one with only 4 bullish hedge fund positions. Oak Street Health, Inc. (NYSE:OSH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for OSH is 77.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.9% in 2021 through October 15th and beat the market again by 4.5 percentage points. Unfortunately OSH wasn't nearly as popular as these 5 stocks and hedge funds that were betting on OSH were disappointed as the stock returned -29.7% since the end of June (through 10/15) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.

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