Hedge Funds Are Dumping Marchex, Inc. (MCHX)

In this article we are going to use hedge fund sentiment as a tool and determine whether Marchex, Inc. (NASDAQ:MCHX) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Marchex, Inc. (NASDAQ:MCHX) has seen a decrease in activity from the world’s largest hedge funds in recent months. Marchex, Inc. (NASDAQ:MCHX) was in 6 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 18. Our calculations also showed that MCHX isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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 monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund owns nearly 40% of this $24 biotech stock and is trying to buy the rest for around $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery 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 check out the new hedge fund action encompassing Marchex, Inc. (NASDAQ:MCHX).

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

At the end of March, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the fourth quarter of 2020. Below, you can check out the change in hedge fund sentiment towards MCHX over the last 23 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of Marchex, Inc. (NASDAQ:MCHX), with a stake worth $6.9 million reported as of the end of March. Trailing Renaissance Technologies was P.A.W. CAPITAL PARTNERS, which amassed a stake valued at $1.7 million. Harbert Management, Two Sigma Advisors, and Arrowstreet 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 P.A.W. CAPITAL PARTNERS allocated the biggest weight to Marchex, Inc. (NASDAQ:MCHX), around 1.48% of its 13F portfolio. Harbert Management is also relatively very bullish on the stock, designating 0.59 percent of its 13F equity portfolio to MCHX.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Roumell Asset Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified MCHX as a viable investment and initiated a position in the stock.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Marchex, Inc. (NASDAQ:MCHX) but similarly valued. These stocks are Wayside Technology Group, Inc. (NASDAQ:WSTG), Manning and Napier Inc (NYSE:MN), Reading International, Inc. (NASDAQ:RDI), Citizens Holding Company (NASDAQ:CIZN), Exterran Corporation (NYSE:EXTN), Build-A-Bear Workshop, Inc (NYSE:BBW), and Smart Sand, Inc. (NASDAQ:SND). This group of stocks’ market caps are similar to MCHX’s market cap.

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As you can see these stocks had an average of 7.4 hedge funds with bullish positions and the average amount invested in these stocks was $11 million. That figure was $10 million in MCHX’s case. Build-A-Bear Workshop, Inc (NYSE:BBW) is the most popular stock in this table. On the other hand Citizens Holding Company (NASDAQ:CIZN) is the least popular one with only 1 bullish hedge fund positions. Marchex, Inc. (NASDAQ:MCHX) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MCHX is 33.2. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 19.3% in 2021 through June 25th and surpassed the market again by 4.8 percentage points. Unfortunately MCHX wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); MCHX investors were disappointed as the stock returned -2.1% since the end of March (through 6/25) 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 in 2021.

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