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Do Hedge Funds Love Martin Marietta Materials, Inc. (MLM)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Martin Marietta Materials, Inc. (NYSE:MLM) based on that data and determine whether they were really smart about the stock.

Is Martin Marietta Materials, Inc. (NYSE:MLM) a healthy stock for your portfolio? The smart money was becoming hopeful. The number of long hedge fund positions rose by 7 recently. Martin Marietta Materials, Inc. (NYSE:MLM) was in 51 hedge funds’ portfolios at the end of June. Our calculations also showed that MLM isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

CHILTON INVESTMENT COMPANY

Richard Chilton of Chilton Investment Company

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. 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. With all of this in mind we’re going to take a look at the new hedge fund action encompassing Martin Marietta Materials, Inc. (NYSE:MLM).

How are hedge funds trading Martin Marietta Materials, Inc. (NYSE:MLM)?

At the end of June, a total of 51 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 16% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MLM over the last 20 quarters. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

More specifically, Select Equity Group was the largest shareholder of Martin Marietta Materials, Inc. (NYSE:MLM), with a stake worth $668.5 million reported as of the end of September. Trailing Select Equity Group was Gardner Russo & Gardner, which amassed a stake valued at $323.1 million. Iridian Asset Management, Alkeon Capital Management, and Nitorum 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 Lafitte Capital Management allocated the biggest weight to Martin Marietta Materials, Inc. (NYSE:MLM), around 8.16% of its 13F portfolio. East Side Capital (RR Partners) is also relatively very bullish on the stock, designating 8.13 percent of its 13F equity portfolio to MLM.

With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Balyasny Asset Management, managed by Dmitry Balyasny, created the largest position in Martin Marietta Materials, Inc. (NYSE:MLM). Balyasny Asset Management had $25.9 million invested in the company at the end of the quarter. Mark Coe’s Intrinsic Edge Capital also made a $14 million investment in the stock during the quarter. The following funds were also among the new MLM investors: Richard Chilton’s Chilton Investment Company, Dov Gertzulin’s DG Capital Management, and Guy Shahar’s DSAM Partners.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Martin Marietta Materials, Inc. (NYSE:MLM) but similarly valued. These stocks are Carnival Corporation & Plc (NYSE:CCL), Zillow Group Inc (NASDAQ:Z), Markel Corporation (NYSE:MKL), SK Telecom Co., Ltd. (NYSE:SKM), Insulet Corporation (NASDAQ:PODD), J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT), and Expeditors International of Washington, Inc. (NASDAQ:EXPD). This group of stocks’ market caps match MLM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CCL 31 362150 0
Z 59 2299780 22
MKL 33 943795 1
SKM 8 129598 3
PODD 44 985462 8
JBHT 24 215950 -1
EXPD 33 443457 2
Average 33.1 768599 5

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.1 hedge funds with bullish positions and the average amount invested in these stocks was $769 million. That figure was $1594 million in MLM’s case. Zillow Group Inc (NASDAQ:Z) is the most popular stock in this table. On the other hand SK Telecom Co., Ltd. (NYSE:SKM) is the least popular one with only 8 bullish hedge fund positions. Martin Marietta Materials, Inc. (NYSE:MLM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MLM is 73.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but 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 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately MLM wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MLM were disappointed as the stock returned -1.6% during the same time period 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 many of these stocks already outperformed the market so far this year.

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