Is MDCA A Good Stock To Buy Now?

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards MDC Partners Inc. (NASDAQ:MDCA) to find out whether there were any major changes in hedge funds’ views.

Is MDCA a good stock to buy now? MDC Partners Inc. (NASDAQ:MDCA) was in 11 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 25. MDCA investors should be aware of a decrease in support from the world’s most elite money managers lately. There were 13 hedge funds in our database with MDCA holdings at the end of June. Our calculations also showed that MDCA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ken Fisher FISHER ASSET MANAGEMENT

Ken Fisher of Fisher Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind we’re going to take a glance at the recent hedge fund action surrounding MDC Partners Inc. (NASDAQ:MDCA).

Do Hedge Funds Think MDCA Is A Good Stock To Buy Now?

At the end of September, a total of 11 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MDCA over the last 21 quarters. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Derek C. Schrier’s Indaba Capital Management has the largest position in MDC Partners Inc. (NASDAQ:MDCA), worth close to $15.1 million, amounting to 4.8% of its total 13F portfolio. The second largest stake is held by Eli Samaha of Madison Avenue Partners, with a $6.2 million position; 2.2% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that are bullish consist of Jonathan Kolatch’s Redwood Capital Management, Israel Englander’s Millennium Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Indaba Capital Management allocated the biggest weight to MDC Partners Inc. (NASDAQ:MDCA), around 4.8% of its 13F portfolio. Madison Avenue Partners is also relatively very bullish on the stock, earmarking 2.24 percent of its 13F equity portfolio to MDCA.

Since MDC Partners Inc. (NASDAQ:MDCA) has experienced falling interest from hedge fund managers, it’s safe to say that there was a specific group of hedge funds who were dropping their full holdings last quarter. Intriguingly, Michael Gelband’s ExodusPoint Capital sold off the largest position of the 750 funds monitored by Insider Monkey, valued at close to $0.1 million in stock. Paul Tudor Jones’s fund, Tudor Investment Corp, also dropped its stock, about $0 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 2 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to MDC Partners Inc. (NASDAQ:MDCA). We will take a look at Lantern Pharma Inc. (NASDAQ:LTRN), Bank of Commerce Holdings (NASDAQ:BOCH), Kirkland’s, Inc. (NASDAQ:KIRK), Pangaea Logistics Solutions, Ltd. (NASDAQ:PANL), Chico’s FAS, Inc. (NYSE:CHS), Republic First Bancorp, Inc. (NASDAQ:FRBK), and Adamas Pharmaceuticals Inc (NASDAQ:ADMS). This group of stocks’ market valuations match MDCA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LTRN 1 661 1
BOCH 5 6817 -1
KIRK 11 29293 4
PANL 1 240 0
CHS 12 23731 -4
FRBK 5 2577 -2
ADMS 12 28074 1
Average 6.7 13056 -0.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.7 hedge funds with bullish positions and the average amount invested in these stocks was $13 million. That figure was $28 million in MDCA’s case. Chico’s FAS, Inc. (NYSE:CHS) is the most popular stock in this table. On the other hand Lantern Pharma Inc. (NASDAQ:LTRN) is the least popular one with only 1 bullish hedge fund positions. MDC Partners Inc. (NASDAQ:MDCA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MDCA is 61.7. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Hedge funds were also right about betting on MDCA as the stock returned 43.5% since the end of Q3 (through 12/8) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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