Is Orthofix Medical Inc. (OFIX) A Good Stock To Buy?

Asma UL Husna

Tue, Jun 11, 2019, 6:20 PM

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

[caption id="attachment_745225" align="aligncenter" width="473"]

Noam Gottesman, GLG Partners[/caption]

We're going to view the recent hedge fund action regarding Orthofix Medical Inc. (NASDAQ:OFIX).

How are hedge funds trading Orthofix Medical Inc. (NASDAQ:OFIX)?

At Q1's end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the previous quarter. By comparison, 20 hedge funds held shares or bullish call options in OFIX a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of Orthofix Medical Inc. (NASDAQ:OFIX), with a stake worth $37.1 million reported as of the end of March. Trailing Renaissance Technologies was GLG Partners, which amassed a stake valued at $15.2 million. Marshall Wace LLP, Pura Vida Investments, and GAMCO Investors were also very fond of the stock, giving the stock large weights in their portfolios.

As aggregate interest increased, specific money managers were breaking ground themselves. Laurion Capital Management, managed by Benjamin A. Smith, created the biggest position in Orthofix Medical Inc. (NASDAQ:OFIX). Laurion Capital Management had $0.6 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also made a $0.2 million investment in the stock during the quarter. The only other fund with a new position in the stock is David M. Knott's Dorset Management.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Orthofix Medical Inc. (NASDAQ:OFIX) but similarly valued. These stocks are Cavco Industries, Inc. (NASDAQ:CVCO), AZZ Incorporated (NYSE:AZZ), Benchmark Electronics, Inc. (NYSE:BHE), and Astronics Corporation (NASDAQ:ATRO). This group of stocks' market caps match OFIX's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CVCO,19,125424,-3 AZZ,16,43674,1 BHE,19,75180,7 ATRO,13,104004,6 Average,16.75,87071,2.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $87 million. That figure was $92 million in OFIX's case. Cavco Industries, Inc. (NASDAQ:CVCO) is the most popular stock in this table. On the other hand Astronics Corporation (NASDAQ:ATRO) is the least popular one with only 13 bullish hedge fund positions. Orthofix Medical Inc. (NASDAQ:OFIX) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately OFIX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on OFIX were disappointed as the stock returned -12.7% during the same period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.

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

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