Is MGP A Good Stock To Buy According To Hedge Funds?

While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding MGM Growth Properties LLC (NYSE:MGP).

Is MGP a good stock to buy? MGM Growth Properties LLC (NYSE:MGP) shareholders have witnessed a decrease in support from the world’s most elite money managers of late. MGM Growth Properties LLC (NYSE:MGP) was in 30 hedge funds’ portfolios at the end of September. The all time high for this statistic is 32. Our calculations also showed that MGP 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was 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’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.

Jeffrey Altman Owl Creek

Jeffrey Altman of Owl Creek Asset Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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 we’re going to take a glance at the fresh hedge fund action surrounding MGM Growth Properties LLC (NYSE:MGP).

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

At the end of the third quarter, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from one quarter earlier. By comparison, 21 hedge funds held shares or bullish call options in MGP a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Citadel Investment Group, managed by Ken Griffin, holds the number one position in MGM Growth Properties LLC (NYSE:MGP). Citadel Investment Group has a $119.2 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Parag Vora of HG Vora Capital Management, with a $70 million position; 5.3% of its 13F portfolio is allocated to the stock. Other peers that hold long positions contain Isaac Corre’s Governors Lane, Jeffrey Altman’s Owl Creek Asset Management and John Khoury’s Long Pond Capital. In terms of the portfolio weights assigned to each position Mountaineer Partners Management allocated the biggest weight to MGM Growth Properties LLC (NYSE:MGP), around 6.82% of its 13F portfolio. BlueMar Capital Management is also relatively very bullish on the stock, setting aside 6.36 percent of its 13F equity portfolio to MGP.

Seeing as MGM Growth Properties LLC (NYSE:MGP) has witnessed bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there was a specific group of hedge funds that elected to cut their entire stakes in the third quarter. Intriguingly, Stuart J. Zimmer’s Zimmer Partners dumped the biggest stake of the 750 funds watched by Insider Monkey, valued at about $136.1 million in stock. Clifton S. Robbins’s fund, Blue Harbour Group, also cut its stock, about $32.2 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 2 funds in the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as MGM Growth Properties LLC (NYSE:MGP) but similarly valued. These stocks are Five9 Inc (NASDAQ:FIVN), LKQ Corporation (NASDAQ:LKQ), NiSource Inc. (NYSE:NI), Formula One Group (NASDAQ:FWONK), Henry Schein, Inc. (NASDAQ:HSIC), Pinnacle West Capital Corporation (NYSE:PNW), and China Southern Airlines Co Ltd (NYSE:ZNH). All of these stocks’ market caps are similar to MGP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FIVN 47 1328168 3
LKQ 51 1384655 7
NI 24 306055 3
FWONK 40 1464422 -9
HSIC 40 1233636 7
PNW 22 404432 -3
ZNH 3 9774 1
Average 32.4 875877 1.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.4 hedge funds with bullish positions and the average amount invested in these stocks was $876 million. That figure was $471 million in MGP’s case. LKQ Corporation (NASDAQ:LKQ) is the most popular stock in this table. On the other hand China Southern Airlines Co Ltd (NYSE:ZNH) is the least popular one with only 3 bullish hedge fund positions. MGM Growth Properties LLC (NYSE:MGP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MGP is 59.3. 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 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. A small number of hedge funds were also right about betting on MGP as the stock returned 15.1% since the end of the third quarter (through 12/18) and outperformed the market by an even larger margin.

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