Is MLAB A Good Stock To Buy Now?

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Mesa Laboratories, Inc. (NASDAQ:MLAB)? The smart money sentiment can provide an answer to this question.

Is MLAB a good stock to buy now? Mesa Laboratories, Inc. (NASDAQ:MLAB) shareholders have witnessed a decrease in support from the world’s most elite money managers of late. Mesa Laboratories, Inc. (NASDAQ:MLAB) was in 8 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 14. Our calculations also showed that MLAB 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.

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 monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Ian Wace Marshall Wace

Ian Wace of Marshall Wace

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 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. 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 look at the latest hedge fund action encompassing Mesa Laboratories, Inc. (NASDAQ:MLAB).

What have hedge funds been doing with Mesa Laboratories, Inc. (NASDAQ:MLAB)?

Heading into the fourth quarter of 2020, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -43% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MLAB over the last 21 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Mesa Laboratories, Inc. (NASDAQ:MLAB) was held by Royce & Associates, which reported holding $79.1 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $10.7 million position. Other investors bullish on the company included Marshall Wace LLP, Millennium Management, and GLG Partners. In terms of the portfolio weights assigned to each position Royce & Associates allocated the biggest weight to Mesa Laboratories, Inc. (NASDAQ:MLAB), around 0.85% of its 13F portfolio. Navellier & Associates is also relatively very bullish on the stock, earmarking 0.06 percent of its 13F equity portfolio to MLAB.

Seeing as Mesa Laboratories, Inc. (NASDAQ:MLAB) has witnessed falling interest from the aggregate hedge fund industry, it’s safe to say that there lies a certain “tier” of funds who sold off their full holdings in the third quarter. At the top of the heap, Franklin Parlamis’s Aequim Alternative Investments dumped the largest stake of all the hedgies monitored by Insider Monkey, comprising close to $4 million in stock, and Matthew L Pinz’s Pinz Capital was right behind this move, as the fund dropped about $1.6 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 6 funds in the third quarter.

Let’s now review hedge fund activity in other stocks similar to Mesa Laboratories, Inc. (NASDAQ:MLAB). These stocks are Nurix Therapeutics, Inc. (NASDAQ:NRIX), Weis Markets, Inc. (NYSE:WMK), Arbor Realty Trust, Inc. (NYSE:ABR), AMC Networks Inc (NASDAQ:AMCX), Frontline Ltd (NYSE:FRO), WW International, Inc. (NASDAQ:WW), and Alamo Group, Inc. (NYSE:ALG). This group of stocks’ market values are similar to MLAB’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NRIX 12 249630 12
WMK 15 46048 -4
ABR 11 49249 5
AMCX 28 218917 2
FRO 10 16368 -2
WW 27 219388 1
ALG 9 164770 -1
Average 16 137767 1.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $138 million. That figure was $104 million in MLAB’s case. AMC Networks Inc (NASDAQ:AMCX) is the most popular stock in this table. On the other hand Alamo Group, Inc. (NYSE:ALG) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Mesa Laboratories, Inc. (NASDAQ:MLAB) is even less popular than ALG. Our overall hedge fund sentiment score for MLAB is 16.1. 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 dodged a bullet by taking a bearish stance towards MLAB. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd but managed to beat the market again by 16 percentage points. Unfortunately MLAB wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); MLAB investors were disappointed as the stock returned 6.6% since the end of the third quarter (through 12/2) 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 most of these stocks already outperformed the market so far in 2020.

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