Is MSGS Stock A Buy or Sell?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Madison Square Garden Sports Corp. (NYSE:MSGS).

Is MSGS stock a buy or sell? Madison Square Garden Sports Corp. (NYSE:MSGS) shareholders have witnessed a decrease in hedge fund interest recently. Madison Square Garden Sports Corp. (NYSE:MSGS) was in 44 hedge funds’ portfolios at the end of the fourth quarter of 2020. 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 Q4 rankings).

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 124 percentage points since March 2017 (see the details here).

Minhua Zhang of Weld Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. Recently Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 best biotech stocks to invest in to pick the next stock that will deliver a 10x return. 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 homepage (or at the end of this article). With all of this in mind let’s take a look at the recent hedge fund action regarding Madison Square Garden Sports Corp. (NYSE:MSGS).

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

At fourth quarter’s end, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the third quarter of 2020. By comparison, 43 hedge funds held shares or bullish call options in MSGS 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.

When looking at the institutional investors followed by Insider Monkey, Silver Lake Partners, managed by Jim Davidson, Dave Roux and Glenn Hutchins, holds the number one position in Madison Square Garden Sports Corp. (NYSE:MSGS). Silver Lake Partners has a $349.8 million position in the stock, comprising 3% of its 13F portfolio. The second largest stake is held by Long Pond Capital, led by John Khoury, holding a $157.7 million position; 5.3% of its 13F portfolio is allocated to the stock. Other professional money managers that hold long positions consist of Mario Gabelli’s GAMCO Investors, Leon Shaulov’s Maplelane Capital and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital. In terms of the portfolio weights assigned to each position Tiger Legatus Capital allocated the biggest weight to Madison Square Garden Sports Corp. (NYSE:MSGS), around 10.39% of its 13F portfolio. Long Pond Capital is also relatively very bullish on the stock, setting aside 5.27 percent of its 13F equity portfolio to MSGS.

Judging by the fact that Madison Square Garden Sports Corp. (NYSE:MSGS) has witnessed bearish sentiment from the smart money, logic holds that there is a sect of money managers that elected to cut their entire stakes by the end of the fourth quarter. It’s worth mentioning that Daniel Sundheim’s D1 Capital Partners dumped the largest stake of the “upper crust” of funds tracked by Insider Monkey, totaling close to $185 million in stock. Jaime Sterne’s fund, Skye Global Management, also dropped its stock, about $20.8 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 4 funds by the end of the fourth quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Madison Square Garden Sports Corp. (NYSE:MSGS) but similarly valued. These stocks are Rush Street Interactive, Inc. (NYSE:RSI), Open Lending Corporation (NASDAQ:LPRO), Companhia Energética de Minas Gerais (NYSE:CIG), Sunnova Energy International Inc. (NYSE:NOVA), ASGN Incorporated (NYSE:ASGN), Verint Systems Inc. (NASDAQ:VRNT), and Workiva Inc (NYSE:WK). This group of stocks’ market caps are closest to MSGS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RSI 26 224704 26
LPRO 34 685554 11
CIG 12 59210 3
NOVA 32 684620 9
ASGN 14 83196 -7
VRNT 20 596005 -7
WK 19 445062 -1
Average 22.4 396907 4.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.4 hedge funds with bullish positions and the average amount invested in these stocks was $397 million. That figure was $973 million in MSGS’s case. Open Lending Corporation (NASDAQ:LPRO) is the most popular stock in this table. On the other hand Companhia Energética de Minas Gerais (NYSE:CIG) is the least popular one with only 12 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 76.4. 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. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and still beat the market by 0.8 percentage points. Unfortunately MSGS wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on MSGS were disappointed as the stock returned 4.2% since the end of the fourth quarter (through 3/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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