Do Hedge Funds Love MaxLinear, Inc. (MXL)?

At Insider Monkey, we pore over the filings of nearly 750 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of September 30. In this article, we will use that wealth of knowledge to determine whether or not MaxLinear, Inc. (NYSE:MXL) makes for a good investment right now.

Is MaxLinear, Inc. (NYSE:MXL) ready to rally soon? Hedge funds are in a bullish mood. The number of bullish hedge fund bets rose by 5 lately. Our calculations also showed that MXL isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).

Video: Click the image to 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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy  based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. Let’s check out the key hedge fund action regarding MaxLinear, Inc. (NYSE:MXL).

What have hedge funds been doing with MaxLinear, Inc. (NYSE:MXL)?

Heading into the fourth quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 71% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in MXL over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in MaxLinear, Inc. (NYSE:MXL) was held by Tairen Capital, which reported holding $9.2 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $5.3 million position. Other investors bullish on the company included Divisar Capital, Renaissance Technologies, and Holocene Advisors. In terms of the portfolio weights assigned to each position Tairen Capital allocated the biggest weight to MaxLinear, Inc. (NYSE:MXL), around 1.36% of its 13F portfolio. Divisar Capital is also relatively very bullish on the stock, setting aside 1.16 percent of its 13F equity portfolio to MXL.

As industrywide interest jumped, specific money managers have been driving this bullishness. Renaissance Technologies, assembled the most outsized position in MaxLinear, Inc. (NYSE:MXL). Renaissance Technologies had $1.1 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also initiated a $0.8 million position during the quarter. The following funds were also among the new MXL investors: Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Hoon Kim’s Quantinno Capital, and David E. Shaw’s D E Shaw.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as MaxLinear, Inc. (NYSE:MXL) but similarly valued. We will take a look at CNOOC Limited (NYSE:CEO), PJT Partners Inc (NYSE:PJT), Pacira BioSciences, Inc. (NASDAQ:PCRX), and Studio City International Holdings Limited (NYSE:MSC). This group of stocks’ market values are closest to MXL’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $248 million. That figure was $24 million in MXL’s case. Pacira BioSciences, Inc. (NASDAQ:PCRX) is the most popular stock in this table. On the other hand Studio City International Holdings Limited (NYSE:MSC) is the least popular one with only 4 bullish hedge fund positions. MaxLinear, Inc. (NYSE:MXL) 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately MXL wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MXL investors were disappointed as the stock returned -11.2% during the first two months of the fourth 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 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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