Hedge Funds Are Crazy About Medifast, Inc. (MED)

Is Medifast, Inc. (NYSE:MED) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Is Medifast, Inc. (NYSE:MED) ready to rally soon? Hedge funds are becoming more confident. The number of bullish hedge fund positions rose by 3 in recent months. Our calculations also showed that MED isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). MED was in 22 hedge funds’ portfolios at the end of the third quarter of 2019. There were 19 hedge funds in our database with MED positions at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Bill Miller

Bill Miller of Miller Value Partners

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. We’re going to take a look at the new hedge fund action encompassing Medifast, Inc. (NYSE:MED).

What does smart money think about Medifast, Inc. (NYSE:MED)?

At Q3’s end, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 16% from the previous quarter. On the other hand, there were a total of 22 hedge funds with a bullish position in MED a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Renaissance Technologies was the largest shareholder of Medifast, Inc. (NYSE:MED), with a stake worth $95.6 million reported as of the end of September. Trailing Renaissance Technologies was Miller Value Partners, which amassed a stake valued at $70.4 million. Citadel Investment Group, GLG Partners, and Kingdon Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Clearline Capital allocated the biggest weight to Medifast, Inc. (NYSE:MED), around 3.6% of its 13F portfolio. Miller Value Partners is also relatively very bullish on the stock, dishing out 2.83 percent of its 13F equity portfolio to MED.

As one would reasonably expect, key hedge funds were leading the bulls’ herd. Miller Value Partners, managed by Bill Miller, assembled the most valuable position in Medifast, Inc. (NYSE:MED). Miller Value Partners had $70.4 million invested in the company at the end of the quarter. Mark Kingdon’s Kingdon Capital also initiated a $13.6 million position during the quarter. The other funds with brand new MED positions are Wilmot B. Harkey and Daniel Mack’s Nantahala Capital Management, Marc Majzner’s Clearline Capital, and Zachary Miller’s Parian Global Management.

Let’s now take a look at hedge fund activity in other stocks similar to Medifast, Inc. (NYSE:MED). We will take a look at Futu Holdings Limited (NASDAQ:FHL), Tompkins Financial Corporation (NYSE:TMP), The Chefs’ Warehouse, Inc (NASDAQ:CHEF), and Liberty Oilfield Services Inc. (NYSE:LBRT). All of these stocks’ market caps resemble MED’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FHL 1 538 -2
TMP 6 20124 1
CHEF 9 58847 0
LBRT 12 36429 5
Average 7 28985 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $29 million. That figure was $302 million in MED’s case. Liberty Oilfield Services Inc. (NYSE:LBRT) is the most popular stock in this table. On the other hand Futu Holdings Limited (NASDAQ:FHL) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Medifast, Inc. (NYSE:MED) is more popular among hedge funds. 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 MED wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MED were disappointed as the stock returned -15.2% 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.