Did Hedge Funds Make The Right Call On Mueller Industries, Inc. (MLI)?

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 Mueller Industries, Inc. (NYSE:MLI) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Mueller Industries, Inc. (NYSE:MLI) a buy, sell, or hold? The smart money was turning less bullish. The number of bullish hedge fund positions were trimmed by 4 recently. Our calculations also showed that MLI 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.

To most traders, hedge funds are perceived as slow, outdated investment vehicles of the past. While there are more than 8000 funds trading today, Our researchers look at the bigwigs of this club, approximately 850 funds. These investment experts manage the lion’s share of all hedge funds’ total capital, and by paying attention to their best investments, Insider Monkey has spotted several investment strategies that have historically exceeded Mr. Market. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points annually 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 .

Jeffrey Gates of Gates Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America 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. Keeping this in mind we’re going to go over the latest hedge fund action regarding Mueller Industries, Inc. (NYSE:MLI).

How have hedgies been trading Mueller Industries, Inc. (NYSE:MLI)?

At the end of the first quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards MLI over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, GAMCO Investors was the largest shareholder of Mueller Industries, Inc. (NYSE:MLI), with a stake worth $95.8 million reported as of the end of September. Trailing GAMCO Investors was Gates Capital Management, which amassed a stake valued at $25.9 million. Arrowstreet Capital, Royce & Associates, and AltraVue 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 AltraVue Capital allocated the biggest weight to Mueller Industries, Inc. (NYSE:MLI), around 4.65% of its 13F portfolio. Gates Capital Management is also relatively very bullish on the stock, designating 1.71 percent of its 13F equity portfolio to MLI.

Judging by the fact that Mueller Industries, Inc. (NYSE:MLI) has witnessed falling interest from the smart money, logic holds that there exists a select few money managers who sold off their full holdings in the first quarter. Intriguingly, Michael Gelband’s ExodusPoint Capital dropped the largest stake of the “upper crust” of funds monitored by Insider Monkey, totaling about $0.9 million in stock, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors was right behind this move, as the fund said goodbye to about $0.5 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 4 funds in the first quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Mueller Industries, Inc. (NYSE:MLI) but similarly valued. These stocks are Corcept Therapeutics Incorporated (NASDAQ:CORT), Hilton Grand Vacations Inc. (NYSE:HGV), Glaukos Corporation (NYSE:GKOS), and InVitae Corporation (NYSE:NVTA). This group of stocks’ market valuations match MLI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CORT 21 160165 0
HGV 29 512572 -17
GKOS 15 83596 -1
NVTA 10 225622 -3
Average 18.75 245489 -5.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $245 million. That figure was $161 million in MLI’s case. Hilton Grand Vacations Inc. (NYSE:HGV) is the most popular stock in this table. On the other hand InVitae Corporation (NYSE:NVTA) is the least popular one with only 10 bullish hedge fund positions. Mueller Industries, Inc. (NYSE:MLI) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 surpassed the market by 17.1 percentage points. Unfortunately MLI wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); MLI investors were disappointed as the stock returned 19.6% since Q1 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.