Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s analyze whether Meritor Inc (NYSE:MTOR) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Is Meritor Inc (NYSE:MTOR) undervalued? Money managers are in a bullish mood. The number of long hedge fund positions moved up by 4 recently. Our calculations also showed that MTOR isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). MTOR was in 29 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 25 hedge funds in our database with MTOR positions at the end of the previous quarter.
To most traders, hedge funds are viewed as unimportant, old financial vehicles of years past. While there are more than 8000 funds with their doors open at the moment, We hone in on the aristocrats of this group, approximately 850 funds. These hedge fund managers handle the lion’s share of all hedge funds’ total capital, and by watching their first-class investments, Insider Monkey has unsheathed a number of investment strategies that have historically outperformed Mr. Market. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Larry Robbins of Glenview Capital
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a glance at the recent hedge fund action regarding Meritor Inc (NYSE:MTOR).
Hedge fund activity in Meritor Inc (NYSE:MTOR)
At the end of the fourth quarter, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 16% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MTOR over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Meritor Inc (NYSE:MTOR) was held by Glenview Capital, which reported holding $188.8 million worth of stock at the end of September. It was followed by Millennium Management with a $45.1 million position. Other investors bullish on the company included Arrowstreet Capital, Royce & Associates, and Driehaus Capital. In terms of the portfolio weights assigned to each position Glenview Capital allocated the biggest weight to Meritor Inc (NYSE:MTOR), around 1.65% of its 13F portfolio. Diametric Capital is also relatively very bullish on the stock, setting aside 0.76 percent of its 13F equity portfolio to MTOR.
Now, specific money managers were leading the bulls’ herd. Driehaus Capital, managed by Richard Driehaus, established the most outsized position in Meritor Inc (NYSE:MTOR). Driehaus Capital had $14.5 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also made a $11.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Alexander Mitchell’s Scopus Asset Management, Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management, and Jonathan Soros’s JS Capital.
Let’s check out hedge fund activity in other stocks similar to Meritor Inc (NYSE:MTOR). We will take a look at AMTD International Inc. (NYSE:HKIB), Otter Tail Corporation (NASDAQ:OTTR), CommVault Systems, Inc. (NASDAQ:CVLT), and BancFirst Corporation (NASDAQ:BANF). This group of stocks’ market values are closest to MTOR’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HKIB | 1 | 17460 | 0 |
| OTTR | 11 | 79797 | -4 |
| CVLT | 33 | 374010 | 5 |
| BANF | 6 | 45270 | -3 |
| Average | 12.75 | 129134 | -0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $129 million. That figure was $413 million in MTOR’s case. CommVault Systems, Inc. (NASDAQ:CVLT) is the most popular stock in this table. On the other hand AMTD International Inc. (NYSE:HKIB) is the least popular one with only 1 bullish hedge fund positions. Meritor Inc (NYSE:MTOR) 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately MTOR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MTOR were disappointed as the stock returned -44% during the same time period 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 so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
