Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks aren’t doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to Magna International Inc. (NYSE:MGA) changed recently.
Is MGA a good stock to buy now? Magna International Inc. (NYSE:MGA) has seen an increase in hedge fund sentiment recently. Magna International Inc. (NYSE:MGA) was in 21 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 43. Our calculations also showed that MGA 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 take a peek at the key hedge fund action surrounding Magna International Inc. (NYSE:MGA).
Do Hedge Funds Think MGA Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MGA over the last 21 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Arrowstreet Capital was the largest shareholder of Magna International Inc. (NYSE:MGA), with a stake worth $160 million reported as of the end of September. Trailing Arrowstreet Capital was Millennium Management, which amassed a stake valued at $48.7 million. East Side Capital (RR Partners), D E Shaw, and Renaissance Technologies 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 East Side Capital (RR Partners) allocated the biggest weight to Magna International Inc. (NYSE:MGA), around 7.01% of its 13F portfolio. Heathbridge Capital Management is also relatively very bullish on the stock, setting aside 4.69 percent of its 13F equity portfolio to MGA.
Now, specific money managers were breaking ground themselves. AlphaCrest Capital Management, managed by Mika Toikka, established the most outsized position in Magna International Inc. (NYSE:MGA). AlphaCrest Capital Management had $0.9 million invested in the company at the end of the quarter. Qing Li’s Sciencast Management also initiated a $0.5 million position during the quarter. The other funds with new positions in the stock are Jonathan Dawson’s Southport Management and Karim Abbadi and Edward McBride’s Centiva Capital.
Let’s check out hedge fund activity in other stocks similar to Magna International Inc. (NYSE:MGA). These stocks are Burlington Stores Inc (NYSE:BURL), MongoDB, Inc. (NASDAQ:MDB), Nucor Corporation (NYSE:NUE), Zebra Technologies Corporation (NASDAQ:ZBRA), Kirkland Lake Gold Ltd. (NYSE:KL), Markel Corporation (NYSE:MKL), and Pool Corporation (NASDAQ:POOL). This group of stocks’ market valuations resemble MGA’s market valuation.
|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 33.7 hedge funds with bullish positions and the average amount invested in these stocks was $850 million. That figure was $349 million in MGA’s case. Zebra Technologies Corporation (NASDAQ:ZBRA) is the most popular stock in this table. On the other hand Kirkland Lake Gold Ltd. (NYSE:KL) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Magna International Inc. (NYSE:MGA) is even less popular than KL. Our overall hedge fund sentiment score for MGA is 21.7. 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. Hedge funds clearly dropped the ball on MGA 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 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on MGA as the stock returned 36.9% since Q3 (through December 14th) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.