Is MRCY A Good Stock To Buy Now?

In this article you are going to find out whether hedge funds think Mercury Systems Inc (NASDAQ:MRCY) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is MRCY a good stock to buy now? Mercury Systems Inc (NASDAQ:MRCY) was in 19 hedge funds’ portfolios at the end of September. The all time high for this statistic is 26. MRCY investors should be aware of a decrease in hedge fund interest lately. There were 26 hedge funds in our database with MRCY positions at the end of the second quarter. Our calculations also showed that MRCY 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.

Ken Griffin

Ken Griffin of Citadel Investment Group

Keeping this in mind we’re going to review the latest hedge fund action encompassing Mercury Systems Inc (NASDAQ:MRCY).

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

At Q3’s end, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -27% from one quarter earlier. By comparison, 22 hedge funds held shares or bullish call options in MRCY a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

The largest stake in Mercury Systems Inc (NASDAQ:MRCY) was held by Citadel Investment Group, which reported holding $9.2 million worth of stock at the end of September. It was followed by GLG Partners with a $9.2 million position. Other investors bullish on the company included Marshall Wace LLP, Millennium Management, and Renaissance Technologies. In terms of the portfolio weights assigned to each position PDT Partners allocated the biggest weight to Mercury Systems Inc (NASDAQ:MRCY), around 0.33% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, earmarking 0.2 percent of its 13F equity portfolio to MRCY.

Because Mercury Systems Inc (NASDAQ:MRCY) has witnessed a decline in interest from hedge fund managers, it’s easy to see that there was a specific group of money managers who were dropping their entire stakes last quarter. Interestingly, Donald Sussman’s Paloma Partners said goodbye to the largest position of all the hedgies watched by Insider Monkey, valued at about $7.9 million in stock. Josh Goldberg’s fund, G2 Investment Partners Management, also cut its stock, about $6.6 million worth. These moves are important to note, as total hedge fund interest dropped by 7 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to Mercury Systems Inc (NASDAQ:MRCY). We will take a look at Tapestry, Inc. (NYSE:TPR), Navistar International Corp (NYSE:NAV), Littelfuse, Inc. (NASDAQ:LFUS), Arena Pharmaceuticals, Inc. (NASDAQ:ARNA), Starwood Property Trust, Inc. (NYSE:STWD), Ashland Global Holdings Inc. (NYSE:ASH), and China Biologic Products Holdings Inc (NASDAQ:CBPO). This group of stocks’ market caps resemble MRCY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TPR 39 670797 0
NAV 43 2102650 10
LFUS 22 352091 -2
ARNA 43 989966 2
STWD 17 93721 -5
ASH 46 1104849 14
CBPO 18 848680 -5
Average 32.6 880393 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.6 hedge funds with bullish positions and the average amount invested in these stocks was $880 million. That figure was $58 million in MRCY’s case. Ashland Global Holdings Inc. (NYSE:ASH) is the most popular stock in this table. On the other hand Starwood Property Trust, Inc. (NYSE:STWD) is the least popular one with only 17 bullish hedge fund positions. Mercury Systems Inc (NASDAQ:MRCY) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MRCY is 23.4. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 surpassed the market again by 15.8 percentage points. Unfortunately MRCY wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MRCY investors were disappointed as the stock returned 3.4% since the end of September (through 12/14) 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 in 2020.

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