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Hedge Funds Have Never Been Less Bullish On Mallinckrodt (MNK)

Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients’ money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds.

Mallinckrodt Public Limited Company (NYSE:MNK) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 20 hedge funds’ portfolios at the end of the second quarter of 2019. At the end of this article we will also compare MNK to other stocks including INTL Fcstone Inc (NASDAQ:INTL), Bryn Mawr Bank Corp. (NASDAQ:BMTC), and Johnson Outdoors Inc. (NASDAQ:JOUT) to get a better sense of its popularity.
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 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 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.

MNK_oct2019

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a peek at the latest hedge fund action regarding Mallinckrodt Public Limited Company (NYSE:MNK).

Hedge fund activity in Mallinckrodt Public Limited Company (NYSE:MNK)

At the end of the second quarter, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 21 hedge funds with a bullish position in MNK a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Bill Miller

More specifically, Deerfield Management was the largest shareholder of Mallinckrodt Public Limited Company (NYSE:MNK), with a stake worth $38.4 million reported as of the end of March. Trailing Deerfield Management was Miller Value Partners, which amassed a stake valued at $34 million. Armistice Capital, AQR Capital Management, and D E Shaw were also very fond of the stock, giving the stock large weights in their portfolios.

Because Mallinckrodt Public Limited Company (NYSE:MNK) has faced declining sentiment from the aggregate hedge fund industry, it’s easy to see that there were a few funds who sold off their entire stakes heading into Q3. Interestingly, Steven Boyd’s Armistice Capital dumped the largest stake of the 750 funds watched by Insider Monkey, valued at about $32.6 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also dropped its stock, about $12.4 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Mallinckrodt Public Limited Company (NYSE:MNK) but similarly valued. These stocks are INTL Fcstone Inc (NASDAQ:INTL), Bryn Mawr Bank Corp. (NASDAQ:BMTC), Johnson Outdoors Inc. (NASDAQ:JOUT), and Griffon Corporation (NYSE:GFF). This group of stocks’ market caps are similar to MNK’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
INTL 11 84299 -4
BMTC 9 35889 -1
JOUT 10 61163 -1
GFF 9 113230 2
Average 9.75 73645 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $74 million. That figure was $153 million in MNK’s case. INTL Fcstone Inc (NASDAQ:INTL) is the most popular stock in this table. On the other hand Bryn Mawr Bank Corp. (NASDAQ:BMTC) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Mallinckrodt Public Limited Company (NYSE:MNK) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately MNK wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MNK were disappointed as the stock returned -73.7% during the third 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 many of these stocks already outperformed the market in Q3.

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

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