Is MMP 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 Magellan Midstream Partners, L.P. (NYSE:MMP) to find out whether there were any major changes in hedge funds’ views.

Is MMP a good stock to buy now? Magellan Midstream Partners, L.P. (NYSE:MMP) was in 20 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 17. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. MMP shareholders have witnessed an increase in activity from the world’s largest hedge funds lately. There were 15 hedge funds in our database with MMP holdings at the end of June. Our calculations also showed that MMP 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.

Charles Davidson - Wexford Capital

Charles Davidson of Wexford Capital

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 latest hedge fund action regarding Magellan Midstream Partners, L.P. (NYSE:MMP).

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

Heading into the fourth quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MMP over the last 21 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Ari Zweiman’s 683 Capital Partners has the largest position in Magellan Midstream Partners, L.P. (NYSE:MMP), worth close to $50 million, comprising 3.7% of its total 13F portfolio. The second largest stake is held by Citadel Investment Group, managed by Ken Griffin, which holds a $14 million call position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism encompass Stephen J. Errico’s Locust Wood Capital Advisers, Henry Breck’s Heronetta Management and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors. In terms of the portfolio weights assigned to each position Heronetta Management allocated the biggest weight to Magellan Midstream Partners, L.P. (NYSE:MMP), around 8.62% of its 13F portfolio. 683 Capital Partners is also relatively very bullish on the stock, setting aside 3.66 percent of its 13F equity portfolio to MMP.

Now, specific money managers have jumped into Magellan Midstream Partners, L.P. (NYSE:MMP) headfirst. 683 Capital Partners, managed by Ari Zweiman, initiated the most valuable position in Magellan Midstream Partners, L.P. (NYSE:MMP). 683 Capital Partners had $50 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $2 million position during the quarter. The other funds with new positions in the stock are Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC, Marc Majzner’s Clearline Capital, and Charles Davidson and Joseph Jacobs’s Wexford Capital.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Magellan Midstream Partners, L.P. (NYSE:MMP) but similarly valued. We will take a look at Amedisys Inc (NASDAQ:AMED), Mylan Inc. (NASDAQ:MYL), Chemed Corporation (NYSE:CHE), Banco de Chile (NYSE:BCH), Amdocs Limited (NASDAQ:DOX), Host Hotels and Resorts Inc (NASDAQ:HST), and Pentair plc (NYSE:PNR). This group of stocks’ market values are closest to MMP’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AMED 31 343564 1
MYL 48 1749763 2
CHE 34 417170 8
BCH 4 34650 1
DOX 29 390241 2
HST 21 212497 -8
PNR 34 593923 0
Average 28.7 534544 0.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.7 hedge funds with bullish positions and the average amount invested in these stocks was $535 million. That figure was $101 million in MMP’s case. Mylan Inc. (NASDAQ:MYL) is the most popular stock in this table. On the other hand Banco de Chile (NYSE:BCH) is the least popular one with only 4 bullish hedge fund positions. Magellan Midstream Partners, L.P. (NYSE:MMP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MMP is 58.2. 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 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 MMP as the stock returned 37.1% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.

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