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MagnaChip Semiconductor Corporation (MX): Are Hedge Funds Right About This Stock?

Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 24.4% during the first 9 months of 2019 and outperformed the broader market benchmark by 4 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Is MagnaChip Semiconductor Corporation (NYSE:MX) a healthy stock for your portfolio? The smart money is turning bullish. The number of long hedge fund bets improved by 3 lately. Our calculations also showed that MX isn’t among the 30 most popular stocks among hedge funds (see the video below). MX was in 21 hedge funds’ portfolios at the end of June. There were 18 hedge funds in our database with MX holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.

Howard Marks OAKTREE CAPITAL MANAGEMENT

Unlike other investors who track every movement of the 25 largest hedge funds, our long-short investment strategy relies on hedge fund buy/sell signals given by the 100 best performing hedge funds. Let’s view the fresh hedge fund action surrounding MagnaChip Semiconductor Corporation (NYSE:MX).

What have hedge funds been doing with MagnaChip Semiconductor Corporation (NYSE:MX)?

Heading into the third quarter of 2019, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MX over the last 16 quarters. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

No of Hedge Funds with MX Positions

Among these funds, Brigade Capital held the most valuable stake in MagnaChip Semiconductor Corporation (NYSE:MX), which was worth $37.9 million at the end of the second quarter. On the second spot was Oaktree Capital Management which amassed $33.6 million worth of shares. Moreover, Rubric Capital Management, North Run Capital, and D E Shaw were also bullish on MagnaChip Semiconductor Corporation (NYSE:MX), allocating a large percentage of their portfolios to this stock.

As one would reasonably expect, specific money managers have jumped into MagnaChip Semiconductor Corporation (NYSE:MX) headfirst. Renaissance Technologies initiated the largest position in MagnaChip Semiconductor Corporation (NYSE:MX). Renaissance Technologies had $0.9 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also made a $0.6 million investment in the stock during the quarter. The other funds with brand new MX positions are Michael Gelband’s ExodusPoint Capital and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as MagnaChip Semiconductor Corporation (NYSE:MX) but similarly valued. These stocks are Achillion Pharmaceuticals, Inc.(NASDAQ:ACHN), AC Immune SA (NASDAQ:ACIU), Allied Motion Technologies, Inc. (NASDAQ:AMOT), and Acorda Therapeutics Inc (NASDAQ:ACOR). This group of stocks’ market caps are similar to MX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ACHN 14 63433 0
ACIU 7 61527 -2
AMOT 12 27502 0
ACOR 16 108015 -6
Average 12.25 65119 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $65 million. That figure was $140 million in MX’s case. Acorda Therapeutics Inc (NASDAQ:ACOR) is the most popular stock in this table. On the other hand AC Immune SA (NASDAQ:ACIU) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks MagnaChip Semiconductor Corporation (NYSE:MX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately MX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MX were disappointed as the stock returned -2% during the third quarter 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 many of these stocks already outperformed the market in Q3.

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

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