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Hedge Funds A Bit Too Early Buying Back Meritor Inc (MTOR)

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Meritor Inc (NYSE:MTOR).

Meritor Inc (NYSE:MTOR) investors should pay attention to an increase in enthusiasm from smart money recently. Our calculations also showed that MTOR isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

GLENVIEW CAPITAL

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a peek at the recent hedge fund action regarding Meritor Inc (NYSE:MTOR).

How are hedge funds trading Meritor Inc (NYSE:MTOR)?

At Q2’s end, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 28% from the first quarter of 2019. By comparison, 19 hedge funds held shares or bullish call options in MTOR a year ago. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

No of Hedge Funds with MTOR Positions

More specifically, Glenview Capital was the largest shareholder of Meritor Inc (NYSE:MTOR), with a stake worth $174.8 million reported as of the end of March. Trailing Glenview Capital was Royce & Associates, which amassed a stake valued at $46.5 million. Highline Capital Management, Arrowstreet Capital, and GLG Partners were also very fond of the stock, giving the stock large weights in their portfolios.

With a general bullishness amongst the heavyweights, some big names have jumped into Meritor Inc (NYSE:MTOR) headfirst. Interval Partners, managed by Gregg Moskowitz, established the most outsized position in Meritor Inc (NYSE:MTOR). Interval Partners had $3.9 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $1.6 million position during the quarter. The other funds with brand new MTOR positions are Bruce Kovner’s Caxton Associates LP, D. E. Shaw’s D E Shaw, and Paul Tudor Jones’s Tudor Investment Corp.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Meritor Inc (NYSE:MTOR) but similarly valued. These stocks are Tellurian Inc. (NASDAQ:TELL), eHealth, Inc. (NASDAQ:EHTH), Shenandoah Telecommunications Company (NASDAQ:SHEN), and Casella Waste Systems Inc. (NASDAQ:CWST). All of these stocks’ market caps resemble MTOR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TELL 9 88902 -7
EHTH 26 454239 3
SHEN 18 107858 4
CWST 12 174012 -2
Average 16.25 206253 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $206 million. That figure was $330 million in MTOR’s case. eHealth, Inc. (NASDAQ:EHTH) is the most popular stock in this table. On the other hand Tellurian Inc. (NASDAQ:TELL) is the least popular one with only 9 bullish hedge fund positions. Meritor Inc (NYSE:MTOR) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately MTOR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MTOR were disappointed as the stock returned -23.7% during the third 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 many of these stocks already outperformed the market so far this year.

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

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