Is McDermott International, Inc. (MDR) Burning These Hedge Funds ?

We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds’ top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like McDermott International, Inc. (NYSE:MDR).

Hedge fund interest in McDermott International, Inc. (NYSE:MDR) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as 360 Finance, Inc. (NASDAQ:QFIN), Badger Meter, Inc. (NYSE:BMI), and QEP Resources Inc (NYSE:QEP) to gather more data points. Our calculations also showed that MDR isn’t among the 30 most popular stocks among hedge funds (see the video below).
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.

Jonathan Barrett Luminus Management

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. We’re going to go over the key hedge fund action encompassing McDermott International, Inc. (NYSE:MDR).

How have hedgies been trading McDermott International, Inc. (NYSE:MDR)?

At the end of the second quarter, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MDR over the last 16 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with MDR Positions

Of the funds tracked by Insider Monkey, Michael Blitzer’s Kingstown Capital Management has the biggest position in McDermott International, Inc. (NYSE:MDR), worth close to $77.3 million, corresponding to 14.1% of its total 13F portfolio. On Kingstown Capital Management’s heels is Jonathan Barrett and Paul Segal of Luminus Management, with a $65.3 million position; 1.6% of its 13F portfolio is allocated to the company. Remaining professional money managers that hold long positions encompass D. E. Shaw’s D E Shaw, and Cliff Asness’s AQR Capital Management.

Due to the fact that McDermott International, Inc. (NYSE:MDR) has faced a decline in interest from hedge fund managers, it’s safe to say that there lies a certain “tier” of hedgies who were dropping their positions entirely in the second quarter. At the top of the heap, David Rosen’s Rubric Capital Management dropped the largest investment of the “upper crust” of funds monitored by Insider Monkey, totaling an estimated $13.1 million in stock, and Kevin Michael Ulrich and Anthony Davis’s Anchorage Advisors was right behind this move, as the fund said goodbye to about $2.2 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as McDermott International, Inc. (NYSE:MDR) but similarly valued. We will take a look at 360 Finance, Inc. (NASDAQ:QFIN), Badger Meter, Inc. (NYSE:BMI), QEP Resources Inc (NYSE:QEP), and Usa Compression Partners LP (NYSE:USAC). This group of stocks’ market valuations are similar to MDR’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
QFIN 9 10013 8
BMI 12 114305 -2
QEP 18 256247 -5
USAC 3 1019 -2
Average 10.5 95396 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $95 million. That figure was $289 million in MDR’s case. QEP Resources Inc (NYSE:QEP) is the most popular stock in this table. On the other hand Usa Compression Partners LP (NYSE:USAC) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks McDermott International, Inc. (NYSE:MDR) 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 MDR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MDR were disappointed as the stock returned -79.1% 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.