Is MSGS A Good Stock To Buy Now?

In this article we will take a look at whether hedge funds think Madison Square Garden Sports Corp. (NYSE:MSGS) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is MSGS a good stock to buy now? Money managers were buying. The number of bullish hedge fund bets went up by 5 in recent months. Madison Square Garden Sports Corp. (NYSE:MSGS) was in 48 hedge funds’ portfolios at the end of September. The all time high for this statistic is 52. Our calculations also showed that MSGS 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.

Daniel Sundheim D1 Capital

Daniel Sundheim of D1 Capital Partners

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. Keeping this in mind let’s check out the recent hedge fund action surrounding Madison Square Garden Sports Corp. (NYSE:MSGS).

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

At the end of September, a total of 48 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 12% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards MSGS over the last 21 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

Is MSGS A Good Stock To Buy?

The largest stake in Madison Square Garden Sports Corp. (NYSE:MSGS) was held by Silver Lake Partners, which reported holding $285.9 million worth of stock at the end of September. It was followed by D1 Capital Partners with a $185 million position. Other investors bullish on the company included Long Pond Capital, GAMCO Investors, and Luxor Capital Group. In terms of the portfolio weights assigned to each position Tegean Capital Management allocated the biggest weight to Madison Square Garden Sports Corp. (NYSE:MSGS), around 17.03% of its 13F portfolio. Marlowe Partners is also relatively very bullish on the stock, earmarking 6.06 percent of its 13F equity portfolio to MSGS.

As one would reasonably expect, key money managers were breaking ground themselves. Shannon River Fund Management, managed by Spencer M. Waxman, assembled the largest position in Madison Square Garden Sports Corp. (NYSE:MSGS). Shannon River Fund Management had $12.3 million invested in the company at the end of the quarter. David Steinberg and Eric Udoff’s Marlowe Partners also initiated a $10.4 million position during the quarter. The following funds were also among the new MSGS investors: Mendel Hui’s Isomer Partners, Jesse Ro’s Tiger Legatus Capital, and Thomas G. Maheras’s Tegean Capital Management.

Let’s now review hedge fund activity in other stocks similar to Madison Square Garden Sports Corp. (NYSE:MSGS). We will take a look at Rayonier Inc. (NYSE:RYN), Eagle Materials, Inc. (NYSE:EXP), Grocery Outlet Holding Corp. (NASDAQ:GO), Halozyme Therapeutics, Inc. (NASDAQ:HALO), Rexnord Corp (NYSE:RXN), SailPoint Technologies Holdings, Inc. (NYSE:SAIL), and 1Life Healthcare, Inc. (NASDAQ:ONEM). This group of stocks’ market caps match MSGS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RYN 17 303710 0
EXP 31 472642 -10
GO 18 119079 -1
HALO 26 206784 0
RXN 24 319104 -3
SAIL 29 765976 8
ONEM 22 378001 2
Average 23.9 366471 -0.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.9 hedge funds with bullish positions and the average amount invested in these stocks was $366 million. That figure was $967 million in MSGS’s case. Eagle Materials, Inc. (NYSE:EXP) is the most popular stock in this table. On the other hand Rayonier Inc. (NYSE:RYN) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Madison Square Garden Sports Corp. (NYSE:MSGS) is more popular among hedge funds. Our overall hedge fund sentiment score for MSGS is 87.7. 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. 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 returned 32.9% in 2020 through December 8th but still managed to beat the market by 16.2 percentage points. Hedge funds were also right about betting on MSGS as the stock returned 18.3% since the end of September (through 12/8) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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