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Did Hedge Funds Make The Right Call On MagnaChip Semiconductor Corporation (MX) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding MagnaChip Semiconductor Corporation (NYSE:MX) and determine whether hedge funds had an edge regarding this stock.

MagnaChip Semiconductor Corporation (NYSE:MX) has seen a decrease in enthusiasm from smart money of late. Our calculations also showed that MX isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the 21st century investor’s toolkit there are tons of methods market participants put to use to grade their stock investments. A pair of the most useful methods are hedge fund and insider trading indicators. Our experts have shown that, historically, those who follow the top picks of the elite fund managers can outclass the broader indices by a healthy margin (see the details here).

Howard Marks OAKTREE CAPITAL MANAGEMENT

Howard Marks of Oaktree Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Now we’re going to analyze the latest hedge fund action surrounding MagnaChip Semiconductor Corporation (NYSE:MX).

How are hedge funds trading MagnaChip Semiconductor Corporation (NYSE:MX)?

At Q1’s end, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from one quarter earlier. By comparison, 18 hedge funds held shares or bullish call options in MX a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

The largest stake in MagnaChip Semiconductor Corporation (NYSE:MX) was held by Oaktree Capital Management, which reported holding $32.5 million worth of stock at the end of September. It was followed by Rubric Capital Management with a $27.8 million position. Other investors bullish on the company included Brigade Capital, Toronado Partners, and North Run Capital. In terms of the portfolio weights assigned to each position North Run Capital allocated the biggest weight to MagnaChip Semiconductor Corporation (NYSE:MX), around 12.25% of its 13F portfolio. Toronado Partners is also relatively very bullish on the stock, designating 5.92 percent of its 13F equity portfolio to MX.

Judging by the fact that MagnaChip Semiconductor Corporation (NYSE:MX) has faced a decline in interest from the smart money, it’s easy to see that there were a few hedgies that elected to cut their full holdings heading into Q4. At the top of the heap, Steve Cohen’s Point72 Asset Management dumped the biggest stake of the “upper crust” of funds followed by Insider Monkey, totaling about $9.5 million in stock. Israel Englander’s fund, Millennium Management, also dropped its stock, about $6.7 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 5 funds heading into Q4.

Let’s go over hedge fund activity in other stocks similar to MagnaChip Semiconductor Corporation (NYSE:MX). These stocks are PDF Solutions, Inc. (NASDAQ:PDFS), Myers Industries, Inc. (NYSE:MYE), Wabash National Corporation (NYSE:WNC), and Intersect ENT Inc (NASDAQ:XENT). This group of stocks’ market caps are similar to MX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PDFS 12 19073 0
MYE 13 71362 0
WNC 16 27269 4
XENT 20 77242 -1
Average 15.25 48737 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $49 million. That figure was $154 million in MX’s case. Intersect ENT Inc (NASDAQ:XENT) is the most popular stock in this table. On the other hand PDF Solutions, Inc. (NASDAQ:PDFS) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks MagnaChip Semiconductor Corporation (NYSE:MX) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately MX wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MX were disappointed as the stock returned -6.8% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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