Did Hedge Funds Drop The Ball On McDermott International, Inc. (MDR) ?

There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Jeff Ubben, George Soros and Carl Icahn think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other elite funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze McDermott International, Inc. (NYSE:MDR).

Is McDermott International, Inc. (NYSE:MDR) a sound investment today? The smart money is turning less bullish. The number of long hedge fund positions were cut by 1 in recent months. Our calculations also showed that mdr isn’t among the 30 most popular stocks among hedge funds.

According to most shareholders, hedge funds are viewed as worthless, outdated financial vehicles of yesteryear. While there are more than 8000 funds trading at the moment, Our researchers hone in on the masters of this club, approximately 750 funds. These hedge fund managers oversee bulk of the smart money’s total capital, and by keeping track of their highest performing stock picks, Insider Monkey has determined various investment strategies that have historically outperformed the market. Insider Monkey’s flagship hedge fund strategy beat the S&P 500 index by nearly 5 percentage points per year since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 27.5% since February 2017 (through March 12th) even though the market was up nearly 25% during the same period. We just shared a list of 6 short targets in our latest quarterly update and they are already down an average of 6% in less than a month.

Jonathan Barrett Luminus Management

Let’s take a look at the new hedge fund action regarding McDermott International, Inc. (NYSE:MDR).

How are hedge funds trading McDermott International, Inc. (NYSE:MDR)?

Heading into the first quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MDR over the last 14 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with MDR Positions

Among these funds, AQR Capital Management held the most valuable stake in McDermott International, Inc. (NYSE:MDR), which was worth $35.2 million at the end of the fourth quarter. On the second spot was Kingstown Capital Management which amassed $34.3 million worth of shares. Moreover, Luminus Management, Millennium Management, and Nokota Management were also bullish on McDermott International, Inc. (NYSE:MDR), allocating a large percentage of their portfolios to this stock.

Seeing as McDermott International, Inc. (NYSE:MDR) has witnessed bearish sentiment from the aggregate hedge fund industry, we can see that there were a few money managers that decided to sell off their positions entirely last quarter. At the top of the heap, David Rosen’s Rubric Capital Management dropped the largest stake of the “upper crust” of funds tracked by Insider Monkey, valued at an estimated $27.1 million in stock. Larry Foley and Paul Farrell’s fund, Bronson Point Partners, also dumped its stock, about $19.4 million worth. These moves are interesting, as total hedge fund interest dropped by 1 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to McDermott International, Inc. (NYSE:MDR). We will take a look at Kite Realty Group Trust (NYSE:KRG), AtriCure Inc. (NASDAQ:ATRC), Kinsale Capital Group, Inc. (NASDAQ:KNSL), and TransAlta Corporation (NYSE:TAC). This group of stocks’ market values resemble MDR’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
KRG 7 25452 -6
ATRC 22 163677 0
KNSL 12 19430 7
TAC 9 12805 0
Average 12.5 55341 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $55 million. That figure was $163 million in MDR’s case. AtriCure Inc. (NASDAQ:ATRC) is the most popular stock in this table. On the other hand Kite Realty Group Trust (NYSE:KRG) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks McDermott International, Inc. (NYSE:MDR) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on MDR as the stock returned 56.1% and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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