Hedge Funds Were Getting Burned By Magnolia Oil & Gas Corporation (MGY) Before The Coronavirus

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Magnolia Oil & Gas Corporation (NASDAQ:MGY).

Magnolia Oil & Gas Corporation (NASDAQ:MGY) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 18 hedge funds’ portfolios at the end of December. At the end of this article we will also compare MGY to other stocks including LiveRamp Holdings, Inc. (NYSE:RAMP), GW Pharmaceuticals plc (NASDAQ:GWPH), and Qualys Inc (NASDAQ:QLYS) to get a better sense of its popularity.

According to most investors, hedge funds are seen as unimportant, outdated investment vehicles of years past. While there are more than 8000 funds trading today, Our researchers choose to focus on the aristocrats of this group, around 850 funds. These money managers administer the majority of the hedge fund industry’s total asset base, and by observing their inimitable investments, Insider Monkey has unsheathed a few investment strategies that have historically outpaced Mr. Market. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points a year 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 .


Leon Cooperman of Omega Advisors

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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 review the key hedge fund action regarding Magnolia Oil & Gas Corporation (NASDAQ:MGY).

What does smart money think about Magnolia Oil & Gas Corporation (NASDAQ:MGY)?

At the end of the fourth quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MGY over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is MGY A Good Stock To Buy?

The largest stake in Magnolia Oil & Gas Corporation (NASDAQ:MGY) was held by Encompass Capital Advisors, which reported holding $65.6 million worth of stock at the end of September. It was followed by Omega Advisors with a $29.7 million position. Other investors bullish on the company included GLG Partners, Wildcat Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Encompass Capital Advisors allocated the biggest weight to Magnolia Oil & Gas Corporation (NASDAQ:MGY), around 4.17% of its 13F portfolio. Wildcat Capital Management is also relatively very bullish on the stock, dishing out 3.1 percent of its 13F equity portfolio to MGY.

Due to the fact that Magnolia Oil & Gas Corporation (NASDAQ:MGY) has experienced bearish sentiment from the entirety of the hedge funds we track, it’s safe to say that there exists a select few hedgies who sold off their entire stakes last quarter. At the top of the heap, Israel Englander’s Millennium Management dumped the biggest position of all the hedgies tracked by Insider Monkey, comprising about $9.1 million in stock, and Wayne Cooperman’s Cobalt Capital Management was right behind this move, as the fund cut about $3.2 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Magnolia Oil & Gas Corporation (NASDAQ:MGY) but similarly valued. We will take a look at LiveRamp Holdings, Inc. (NYSE:RAMP), GW Pharmaceuticals plc (NASDAQ:GWPH), Qualys Inc (NASDAQ:QLYS), and Iridium Communications Inc. (NASDAQ:IRDM). This group of stocks’ market caps are similar to MGY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RAMP 20 176338 1
GWPH 24 366117 -8
QLYS 29 179997 10
IRDM 20 285571 2
Average 23.25 252006 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.25 hedge funds with bullish positions and the average amount invested in these stocks was $252 million. That figure was $142 million in MGY’s case. Qualys Inc (NASDAQ:QLYS) is the most popular stock in this table. On the other hand LiveRamp Holdings, Inc. (NYSE:RAMP) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Magnolia Oil & Gas Corporation (NASDAQ:MGY) is even less popular than RAMP. Hedge funds dodged a bullet by taking a bearish stance towards MGY. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but managed to beat the market by 5.5 percentage points. Unfortunately MGY wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); MGY investors were disappointed as the stock returned -67.9% 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 most of these stocks already outperformed the market so far in Q1.
5 Most Popular Stocks Among Hedge Funds
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.