2019 Review: Most Favored Hedge Fund Stocks vs. Motorola Solutions Inc (MSI)

Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ complex research processes to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space. Nevertheless, it is also possible to find underpriced large-cap stocks by following the hedge funds’ moves. In this article, we look at what those funds think of Motorola Solutions Inc (NYSE:MSI) based on that data.

Motorola Solutions Inc (NYSE:MSI) has seen an increase in enthusiasm from smart money lately. MSI was in 33 hedge funds’ portfolios at the end of September. There were 25 hedge funds in our database with MSI positions at the end of the previous quarter. Our calculations also showed that MSI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.


Philippe Laffont of Coatue Management

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s take a look at the new hedge fund action regarding Motorola Solutions Inc (NYSE:MSI).

How have hedgies been trading Motorola Solutions Inc (NYSE:MSI)?

At Q3’s end, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 32% from one quarter earlier. By comparison, 26 hedge funds held shares or bullish call options in MSI a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

Is MSI A Good Stock To Buy?

The largest stake in Motorola Solutions Inc (NYSE:MSI) was held by Coatue Management, which reported holding $271.3 million worth of stock at the end of September. It was followed by Holocene Advisors with a $155.6 million position. Other investors bullish on the company included Millennium Management, D E Shaw, and Newbrook Capital Advisors. In terms of the portfolio weights assigned to each position Clearfield Capital allocated the biggest weight to Motorola Solutions Inc (NYSE:MSI), around 8.83% of its 13F portfolio. Newbrook Capital Advisors is also relatively very bullish on the stock, earmarking 4.38 percent of its 13F equity portfolio to MSI.

As industrywide interest jumped, key money managers were breaking ground themselves. Newbrook Capital Advisors, managed by Robert Boucai, initiated the biggest position in Motorola Solutions Inc (NYSE:MSI). Newbrook Capital Advisors had $56.3 million invested in the company at the end of the quarter. Mark Kingdon’s Kingdon Capital also initiated a $20.9 million position during the quarter. The other funds with new positions in the stock are James Dinan’s York Capital Management, Philip Hilal’s Clearfield Capital, and Simon Sadler’s Segantii Capital.

Let’s check out hedge fund activity in other stocks similar to Motorola Solutions Inc (NYSE:MSI). These stocks are Nokia Corporation (NYSE:NOK), Zimmer Biomet Holdings Inc (NYSE:ZBH), Cintas Corporation (NASDAQ:CTAS), and HP Inc. (NYSE:HPQ). This group of stocks’ market valuations resemble MSI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NOK 23 417397 -1
ZBH 44 1473799 2
CTAS 37 931398 10
HPQ 38 2031394 6
Average 35.5 1213497 4.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.5 hedge funds with bullish positions and the average amount invested in these stocks was $1213 million. That figure was $933 million in MSI’s case. Zimmer Biomet Holdings Inc (NYSE:ZBH) is the most popular stock in this table. On the other hand Nokia Corporation (NYSE:NOK) is the least popular one with only 23 bullish hedge fund positions. Motorola Solutions Inc (NYSE:MSI) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. A small number of hedge funds were also right about betting on MSI as the stock returned 43.1% in 2019 through December 23rd and outperformed the market by an even larger margin.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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