Hedge Funds Are Crazy About MagnaChip Semiconductor Corporation (MX)

In this article you are going to find out whether hedge funds think MagnaChip Semiconductor Corporation (NYSE:MX) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

MagnaChip Semiconductor Corporation (NYSE:MX) shareholders have witnessed an increase in hedge fund sentiment recently. MagnaChip Semiconductor Corporation (NYSE:MX) was in 35 hedge funds’ portfolios at the end of June. The all time high for this statistic was previously 30. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that MX isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Nathaniel August - Mangrove Partners

Nathaniel August of Mangrove Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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. You can subscribe to our free daily newsletter on our homepage. With all of this in mind let’s go over the recent hedge fund action regarding MagnaChip Semiconductor Corporation (NYSE:MX).

Do Hedge Funds Think MX Is A Good Stock To Buy Now?

At second quarter’s end, a total of 35 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from the first quarter of 2020. By comparison, 25 hedge funds held shares or bullish call options in MX a year ago. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

Is MX A Good Stock To Buy?

The largest stake in MagnaChip Semiconductor Corporation (NYSE:MX) was held by Oaktree Capital Management, which reported holding $47.9 million worth of stock at the end of June. It was followed by Toronado Partners with a $39.7 million position. Other investors bullish on the company included Brigade Capital, Mangrove Partners, and Millennium Management. In terms of the portfolio weights assigned to each position Toronado Partners allocated the biggest weight to MagnaChip Semiconductor Corporation (NYSE:MX), around 11.57% of its 13F portfolio. Cumberland Associates / Springowl Associates is also relatively very bullish on the stock, designating 3.86 percent of its 13F equity portfolio to MX.

Consequently, specific money managers were leading the bulls’ herd. Water Island Capital, managed by John Orrico, assembled the biggest position in MagnaChip Semiconductor Corporation (NYSE:MX). Water Island Capital had $13 million invested in the company at the end of the quarter. Matthew Moskey and Friedrich Schulte-Hillen’s Athos Capital also made a $7.6 million investment in the stock during the quarter. The following funds were also among the new MX investors: Tony Davis’s Inherent Group, Noam Gottesman’s GLG Partners, and Orkun Kilic’s Berry Street Capital.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as MagnaChip Semiconductor Corporation (NYSE:MX) but similarly valued. These stocks are Radius Global Infrastructure, Inc. (NASDAQ:RADI), Altus Midstream Company (NASDAQ:ALTM), AMMO, Inc. (NASDAQ:POWW), Endo International plc (NASDAQ:ENDP), Lydall, Inc. (NYSE:LDL), Montauk Renewables, Inc. (NASDAQ:MNTK), and Nam Tai Property Inc (NYSE:NTP). All of these stocks’ market caps are closest to MX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RADI 20 378266 3
ALTM 3 1506 -1
POWW 9 11343 2
ENDP 20 227517 3
LDL 22 210877 10
MNTK 6 3533 1
NTP 3 144269 -1
Average 11.9 139616 2.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.9 hedge funds with bullish positions and the average amount invested in these stocks was $140 million. That figure was $308 million in MX’s case. Lydall, Inc. (NYSE:LDL) is the most popular stock in this table. On the other hand Altus Midstream Company (NASDAQ:ALTM) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks MagnaChip Semiconductor Corporation (NYSE:MX) is more popular among hedge funds. Our overall hedge fund sentiment score for MX is 90. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 21.8% in 2021 through October 11th and still beat the market by 4.4 percentage points. Unfortunately MX wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on MX were disappointed as the stock returned -25.7% since the end of the second quarter (through 10/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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