Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Hedge Funds Have Never Been This Bullish On McGrath RentCorp (MGRC)

There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Jeff Ubben, George Soros and Carl Icahn think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other elite funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze McGrath RentCorp (NASDAQ:MGRC).

McGrath RentCorp (NASDAQ:MGRC) has seen an increase in hedge fund sentiment recently. Our calculations also showed that MGRC isn’t among the 30 most popular stocks among hedge funds.

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 market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Chuck Royce

Let’s view the key hedge fund action encompassing McGrath RentCorp (NASDAQ:MGRC).

Hedge fund activity in McGrath RentCorp (NASDAQ:MGRC)

Heading into the first quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MGRC over the last 14 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

MGRC_apr2019

The largest stake in McGrath RentCorp (NASDAQ:MGRC) was held by Renaissance Technologies, which reported holding $30.3 million worth of stock at the end of December. It was followed by Headlands Capital with a $15.1 million position. Other investors bullish on the company included Royce & Associates, AQR Capital Management, and Millennium Management.

As aggregate interest increased, some big names were leading the bulls’ herd. Stevens Capital Management, managed by Matthew Tewksbury, assembled the biggest position in McGrath RentCorp (NASDAQ:MGRC). Stevens Capital Management had $0.2 million invested in the company at the end of the quarter.

Let’s also examine hedge fund activity in other stocks similar to McGrath RentCorp (NASDAQ:MGRC). These stocks are Silicon Motion Technology Corp. (NASDAQ:SIMO), Studio City International Holdings Limited (NYSE:MSC), American Axle & Manufacturing Holdings, Inc. (NYSE:AXL), and WAVE Life Sciences Ltd. (NASDAQ:WVE). All of these stocks’ market caps are similar to MGRC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SIMO 17 194652 1
MSC 5 196463 5
AXL 24 124082 -1
WVE 21 492122 -1
Average 16.75 251830 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $252 million. That figure was $119 million in MGRC’s case. American Axle & Manufacturing Holdings, Inc. (NYSE:AXL) is the most popular stock in this table. On the other hand Studio City International Holdings Limited (NYSE:MSC) is the least popular one with only 5 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. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately MGRC wasn’t nearly as popular as these 15 stock and hedge funds that were betting on MGRC were disappointed as the stock returned 15.9% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.

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

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading...