Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant out-performance. These stocks have been on a tear since the end of June, outperforming large-cap index funds by more than 10 percentage points. That’s why we pay special attention to hedge fund activity in these stocks.
Is Meritor Inc (NYSE:MTOR) a buy right now? Hedge funds are getting more optimistic. The number of long hedge fund bets that are revealed through the 13F filings swelled by 2 recently. MTOR was in 20 hedge funds’ portfolios at the end of September. There were 18 hedge funds in our database with MTOR positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as MINDBODY Inc (NASDAQ:MB), Dime Community Bancshares, Inc. (NASDAQ:DCOM), and JinkoSolar Holding Co., Ltd. (NYSE:JKS) to gather more data points.
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
How are hedge funds trading Meritor Inc (NYSE:MTOR)?
Heading into the fourth quarter of 2016, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, an increase of 11% from the previous quarter. By comparison, 20 hedge funds also held shares or bullish call options in MTOR heading into this year. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Glenview Capital, led by Larry Robbins, holds the largest position in Meritor Inc (NYSE:MTOR). Glenview Capital has a $90.5 million position in the stock. The second most bullish fund manager is Avenue Capital, led by Marc Lasry, holding a $54 million position; 11.4% of its 13F portfolio is allocated to the company. Other peers with similar optimism consist of Robert Polak’s Anchor Bolt Capital, Robert B. Gillam’s McKinley Capital Management and Chuck Royce’s Royce & Associates. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
As one would reasonably expect, key hedge funds were breaking ground themselves. Israel Englander’s Millennium Management created the biggest position in Meritor Inc (NYSE:MTOR). Millennium Management had $4.7 million invested in the company at the end of the quarter. Neil Chriss’ Hutchin Hill Capital also made a $1.9 million investment in the stock during the quarter. The other funds with brand new MTOR positions are Peter Algert and Kevin Coldiron’s Algert Coldiron Investors, Glenn Russell Dubin’s Highbridge Capital Management, and John Overdeck and David Siegel’s Two Sigma Advisors.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Meritor Inc (NYSE:MTOR) but similarly valued. These stocks are MINDBODY Inc (NASDAQ:MB), Dime Community Bancshares, Inc. (NASDAQ:DCOM), JinkoSolar Holding Co., Ltd. (NYSE:JKS), and Lattice Semiconductor (NASDAQ:LSCC). This group of stocks’ market valuations match MTOR’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 11 hedge funds with bullish positions and the average amount invested in these stocks was $52 million. That figure was $232 million in MTOR’s case. MINDBODY Inc (NASDAQ:MB) is the most popular stock in this table. On the other hand JinkoSolar Holding Co., Ltd. (NYSE:JKS) is the least popular one with only 5 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. In this regard MB might be a better candidate to consider taking a long position in.