Is MCHP A Good Stock To Buy According To Hedge Funds?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 817 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of September 30th, 2020. What do these smart investors think about Microchip Technology Incorporated (NASDAQ:MCHP)?

Is MCHP a good stock to buy? Microchip Technology Incorporated (NASDAQ:MCHP) investors should pay attention to an increase in activity from the world’s largest hedge funds of late. Microchip Technology Incorporated (NASDAQ:MCHP) was in 35 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 46. There were 33 hedge funds in our database with MCHP positions at the end of the second quarter. Our calculations also showed that MCHP 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.

Kerr Neilson of Platinum Asset Management

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. Now we’re going to view the new hedge fund action surrounding Microchip Technology Incorporated (NASDAQ:MCHP).

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

At third quarter’s end, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MCHP over the last 21 quarters. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

Among these funds, Platinum Asset Management held the most valuable stake in Microchip Technology Incorporated (NASDAQ:MCHP), which was worth $232 million at the end of the third quarter. On the second spot was Woodline Partners which amassed $72.6 million worth of shares. Citadel Investment Group, D E Shaw, and Point State Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Platinum Asset Management allocated the biggest weight to Microchip Technology Incorporated (NASDAQ:MCHP), around 5.74% of its 13F portfolio. Blue Grotto Capital is also relatively very bullish on the stock, dishing out 3.81 percent of its 13F equity portfolio to MCHP.

Now, key hedge funds have jumped into Microchip Technology Incorporated (NASDAQ:MCHP) headfirst. Woodline Partners, managed by Michael Rockefeller and KarláKroeker, assembled the most valuable position in Microchip Technology Incorporated (NASDAQ:MCHP). Woodline Partners had $72.6 million invested in the company at the end of the quarter. George Soros’s Soros Fund Management also initiated a $27.5 million position during the quarter. The following funds were also among the new MCHP investors: Louis Bacon’s Moore Global Investments, Ben Gordon’s Blue Grotto Capital, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Microchip Technology Incorporated (NASDAQ:MCHP) but similarly valued. These stocks are AFLAC Incorporated (NYSE:AFL), Stanley Black & Decker, Inc. (NYSE:SWK), Fresenius Medical Care AG & Co. KGaA (NYSE:FMS), Fastenal Company (NASDAQ:FAST), McCormick & Company, Incorporated (NYSE:MKC), Archer Daniels Midland Company (NYSE:ADM), and BeiGene, Ltd. (NASDAQ:BGNE). This group of stocks’ market values match MCHP’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AFL 34 479100 0
SWK 38 786276 5
FMS 9 14151 3
FAST 38 700349 4
MKC 37 315538 5
ADM 26 673303 -2
BGNE 13 5585118 0
Average 27.9 1221976 2.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.9 hedge funds with bullish positions and the average amount invested in these stocks was $1222 million. That figure was $629 million in MCHP’s case. Stanley Black & Decker, Inc. (NYSE:SWK) is the most popular stock in this table. On the other hand Fresenius Medical Care AG & Co. KGaA (NYSE:FMS) is the least popular one with only 9 bullish hedge fund positions. Microchip Technology Incorporated (NASDAQ:MCHP) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MCHP is 74.7. 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 gained 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on MCHP as the stock returned 34.7% since the end of Q3 (through 12/18) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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