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Did Hedge Funds Make The Right Call On Medallia, Inc. (MDLA)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Medallia, Inc. (NYSE:MDLA) and determine whether hedge funds skillfully traded this stock.

Medallia, Inc. (NYSE:MDLA) investors should pay attention to a decrease in enthusiasm from smart money of late. MDLA was in 20 hedge funds’ portfolios at the end of the first quarter of 2020. There were 22 hedge funds in our database with MDLA holdings at the end of the previous quarter. Our calculations also showed that MDLA 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.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

COATUE MANAGEMENT

Philippe Laffont of Coatue Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar 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 check out the recent hedge fund action surrounding Medallia, Inc. (NYSE:MDLA).

How are hedge funds trading Medallia, Inc. (NYSE:MDLA)?

At the end of the first quarter, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MDLA over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is MDLA A Good Stock To Buy?

More specifically, SCGE Management was the largest shareholder of Medallia, Inc. (NYSE:MDLA), with a stake worth $82.1 million reported as of the end of September. Trailing SCGE Management was Lone Pine Capital, which amassed a stake valued at $37.1 million. RGM Capital, Polar Capital, and Platinum Asset Management 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 SCGE Management allocated the biggest weight to Medallia, Inc. (NYSE:MDLA), around 2.58% of its 13F portfolio. RGM Capital is also relatively very bullish on the stock, earmarking 2.56 percent of its 13F equity portfolio to MDLA.

Due to the fact that Medallia, Inc. (NYSE:MDLA) has experienced falling interest from the entirety of the hedge funds we track, it’s safe to say that there is a sect of fund managers that elected to cut their entire stakes last quarter. At the top of the heap, Noam Gottesman’s GLG Partners said goodbye to the largest position of the 750 funds tracked by Insider Monkey, worth close to $1.7 million in stock. Josh Goldberg’s fund, G2 Investment Partners Management, also said goodbye to its stock, about $1.3 million worth. These moves are important to note, as total hedge fund interest was cut by 2 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Medallia, Inc. (NYSE:MDLA) but similarly valued. We will take a look at PVH Corp (NYSE:PVH), Cannae Holdings, Inc. (NYSE:CNNE), Devon Energy Corporation (NYSE:DVN), and Nexstar Media Group, Inc. (NASDAQ:NXST). This group of stocks’ market caps are similar to MDLA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PVH 18 346896 -11
CNNE 20 240727 -11
DVN 42 222790 -12
NXST 41 662726 1
Average 30.25 368285 -8.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.25 hedge funds with bullish positions and the average amount invested in these stocks was $368 million. That figure was $238 million in MDLA’s case. Devon Energy Corporation (NYSE:DVN) is the most popular stock in this table. On the other hand PVH Corp (NYSE:PVH) is the least popular one with only 18 bullish hedge fund positions. Medallia, Inc. (NYSE:MDLA) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on MDLA as the stock returned 57.6% since the end of March and outperformed the market by an even larger margin.

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