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Did Hedge Funds Make The Right Call On McGrath RentCorp (MGRC) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards McGrath RentCorp (NASDAQ:MGRC) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Hedge fund interest in McGrath RentCorp (NASDAQ:MGRC) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Employers Holdings, Inc. (NYSE:EIG), WSFS Financial Corporation (NASDAQ:WSFS), and OSI Systems, Inc. (NASDAQ:OSIS) to gather more data points. Our calculations also showed that MGRC 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.

According to most investors, hedge funds are seen as unimportant, outdated financial vehicles of years past. While there are more than 8000 funds in operation at the moment, Our researchers choose to focus on the leaders of this club, about 850 funds. These investment experts watch over the lion’s share of the smart money’s total asset base, and by monitoring their matchless stock picks, Insider Monkey has formulated various investment strategies that have historically outstripped the broader indices. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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 we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now we’re going to take a look at the key hedge fund action surrounding McGrath RentCorp (NASDAQ:MGRC).

Hedge fund activity in McGrath RentCorp (NASDAQ:MGRC)

At the end of the first quarter, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MGRC over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of McGrath RentCorp (NASDAQ:MGRC), with a stake worth $18.6 million reported as of the end of September. Trailing Renaissance Technologies was Headlands Capital, which amassed a stake valued at $12.2 million. Royce & Associates, Marshall Wace LLP, and Arrowstreet Capital 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 Headlands Capital allocated the biggest weight to McGrath RentCorp (NASDAQ:MGRC), around 13.09% of its 13F portfolio. G2 Investment Partners Management is also relatively very bullish on the stock, designating 1.64 percent of its 13F equity portfolio to MGRC.

Because McGrath RentCorp (NASDAQ:MGRC) has witnessed falling interest from the aggregate hedge fund industry, it’s safe to say that there were a few hedgies who sold off their full holdings last quarter. Interestingly, Donald Sussman’s Paloma Partners said goodbye to the biggest position of the “upper crust” of funds tracked by Insider Monkey, comprising about $0.3 million in stock. Steve Cohen’s fund, Point72 Asset Management, also dumped its stock, about $0.1 million worth. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as McGrath RentCorp (NASDAQ:MGRC) but similarly valued. We will take a look at Employers Holdings, Inc. (NYSE:EIG), WSFS Financial Corporation (NASDAQ:WSFS), OSI Systems, Inc. (NASDAQ:OSIS), and Park National Corporation (NYSE:PRK). This group of stocks’ market caps resemble MGRC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EIG 10 52392 -5
WSFS 12 99147 -4
OSIS 15 12739 -5
PRK 6 8226 -4
Average 10.75 43126 -4.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $43 million. That figure was $91 million in MGRC’s case. OSI Systems, Inc. (NASDAQ:OSIS) is the most popular stock in this table. On the other hand Park National Corporation (NYSE:PRK) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks McGrath RentCorp (NASDAQ:MGRC) 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 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. Unfortunately MGRC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MGRC were disappointed as the stock returned 7.6% since the end of the first 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.