In this article we will analyze whether Micro Focus Intl PLC (NYSE:MFGP) 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 by double digits annually.
Is MFGP a good stock to buy now? Micro Focus Intl PLC (NYSE:MFGP) has seen a decrease in hedge fund interest lately. Micro Focus Intl PLC (NYSE:MFGP) was in 10 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 22. Our calculations also showed that MFGP 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.
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 S&P 500 ETFs by more than 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 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 stocks that are in our short portfolio.
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. Now let’s check out the recent hedge fund action encompassing Micro Focus Intl PLC (NYSE:MFGP).
Do Hedge Funds Think MFGP Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -23% from one quarter earlier. On the other hand, there were a total of 8 hedge funds with a bullish position in MFGP a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
More specifically, Arrowstreet Capital was the largest shareholder of Micro Focus Intl PLC (NYSE:MFGP), with a stake worth $6.7 million reported as of the end of September. Trailing Arrowstreet Capital was VIEX Capital Advisors, which amassed a stake valued at $3.9 million. Two Sigma Advisors, Renaissance Technologies, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position VIEX Capital Advisors allocated the biggest weight to Micro Focus Intl PLC (NYSE:MFGP), around 3.75% of its 13F portfolio. Hosking Partners is also relatively very bullish on the stock, earmarking 0.03 percent of its 13F equity portfolio to MFGP.
Because Micro Focus Intl PLC (NYSE:MFGP) has witnessed a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there were a few money managers that slashed their entire stakes in the third quarter. It’s worth mentioning that Ken Griffin’s Citadel Investment Group dumped the largest stake of all the hedgies tracked by Insider Monkey, totaling close to $0.8 million in stock, and Greg Eisner’s Engineers Gate Manager was right behind this move, as the fund sold off about $0.3 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 3 funds in the third quarter.
Let’s go over hedge fund activity in other stocks similar to Micro Focus Intl PLC (NYSE:MFGP). These stocks are Sturm, Ruger & Company (NYSE:RGR), Methode Electronics Inc. (NYSE:MEI), The Liberty Braves Group (NASDAQ:BATRA), Akero Therapeutics, Inc. (NASDAQ:AKRO), Gol Linhas Aereas Inteligentes SA (NYSE:GOL), Central European Media Enterprises Ltd. (NASDAQ:CETV), and Community Healthcare Trust Inc (NYSE:CHCT). This group of stocks’ market caps are similar to MFGP’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.4 hedge funds with bullish positions and the average amount invested in these stocks was $108 million. That figure was $19 million in MFGP’s case. Sturm, Ruger & Company (NYSE:RGR) is the most popular stock in this table. On the other hand Gol Linhas Aereas Inteligentes SA (NYSE:GOL) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Micro Focus Intl PLC (NYSE:MFGP) is even less popular than GOL. Our overall hedge fund sentiment score for MFGP is 15.6. 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. Hedge funds clearly dropped the ball on MFGP as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on MFGP as the stock returned 91.9% since Q3 (through December 8th) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.