Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the 12-month period ending October 30. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 30 stock picks outperformed the S&P 500 Index by 4 percentage points through the middle of November. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.
Is McGrath RentCorp (NASDAQ:MGRC) a buy, sell, or hold? Money managers are becoming hopeful. The number of long hedge fund positions increased by 2 lately. Our calculations also showed that MGRC isn’t among the 30 most popular stocks among hedge funds. MGRC was in 22 hedge funds’ portfolios at the end of the third quarter of 2018. There were 20 hedge funds in our database with MGRC positions at the end of the previous quarter.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 6.3% year to date (through December 3rd) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 18 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
We’re going to go over the key hedge fund action regarding McGrath RentCorp (NASDAQ:MGRC).
How are hedge funds trading McGrath RentCorp (NASDAQ:MGRC)?
Heading into the fourth quarter of 2018, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from the previous quarter. On the other hand, there were a total of 14 hedge funds with a bullish position in MGRC at the beginning of this year. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of McGrath RentCorp (NASDAQ:MGRC), with a stake worth $36.7 million reported as of the end of September. Trailing Renaissance Technologies was Arrowstreet Capital, which amassed a stake valued at $16 million. Headlands Capital, Royce & Associates, and AQR Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
As industrywide interest jumped, key hedge funds have been driving this bullishness. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, created the biggest position in McGrath RentCorp (NASDAQ:MGRC). Marshall Wace LLP had $3.3 million invested in the company at the end of the quarter. David Costen Haley’s HBK Investments also initiated a $0.3 million position during the quarter. The other funds with new positions in the stock are Bruce Kovner’s Caxton Associates LP and Brandon Haley’s Holocene Advisors.
Let’s go over hedge fund activity in other stocks similar to McGrath RentCorp (NASDAQ:MGRC). We will take a look at Arcos Dorados Holdings Inc (NYSE:ARCO), AZZ Incorporated (NYSE:AZZ), Cardiovascular Systems Inc (NASDAQ:CSII), and CBIZ, Inc. (NYSE:CBZ). All of these stocks’ market caps are closest to MGRC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ARCO | 18 | 104370 | 5 |
| AZZ | 14 | 46315 | 4 |
| CSII | 22 | 184900 | 3 |
| CBZ | 15 | 181773 | 3 |
| Average | 17.25 | 129340 | 3.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $129 million. That figure was $140 million in MGRC’s case. Cardiovascular Systems Inc (NASDAQ:CSII) is the most popular stock in this table. On the other hand AZZ Incorporated (NYSE:AZZ) is the least popular one with only 14 bullish hedge fund positions. McGrath RentCorp (NASDAQ:MGRC) 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 CSII might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
