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Magnolia Oil & Gas Corporation (MGY): Are Hedge Funds Right About This Stock?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Magnolia Oil & Gas Corporation (NYSE:MGY) based on that data and determine whether they were really smart about the stock.

Is Magnolia Oil & Gas Corporation (NYSE:MGY) a buy right now? The smart money was in an optimistic mood. The number of long hedge fund bets inched up by 2 recently. Our calculations also showed that MGY isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). MGY was in 20 hedge funds’ portfolios at the end of March. There were 18 hedge funds in our database with MGY positions at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Groupon, Alibaba, is GRPN a good stock to buy, is BABA a good stock to buy, Leon Cooperman, Omega Advisors,

Leon Cooperman of Omega Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in the world 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now we’re going to check out the key hedge fund action regarding Magnolia Oil & Gas Corporation (NYSE:MGY).

How have hedgies been trading Magnolia Oil & Gas Corporation (NYSE:MGY)?

At Q1’s end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from the fourth quarter of 2019. By comparison, 32 hedge funds held shares or bullish call options in MGY a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Magnolia Oil & Gas Corporation (NYSE:MGY) was held by Encompass Capital Advisors, which reported holding $18 million worth of stock at the end of September. It was followed by Omega Advisors with a $9.8 million position. Other investors bullish on the company included Citadel Investment Group, Alyeska Investment Group, and GLG Partners. In terms of the portfolio weights assigned to each position Encompass Capital Advisors allocated the biggest weight to Magnolia Oil & Gas Corporation (NYSE:MGY), around 1.93% of its 13F portfolio. Omega Advisors is also relatively very bullish on the stock, dishing out 1.27 percent of its 13F equity portfolio to MGY.

With a general bullishness amongst the heavyweights, key hedge funds have jumped into Magnolia Oil & Gas Corporation (NYSE:MGY) headfirst. Alyeska Investment Group, managed by Anand Parekh, assembled the most outsized position in Magnolia Oil & Gas Corporation (NYSE:MGY). Alyeska Investment Group had $3 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $2.2 million investment in the stock during the quarter. The following funds were also among the new MGY investors: Peter Muller’s PDT Partners, Renaissance Technologies, and Dmitry Balyasny’s Balyasny Asset Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Magnolia Oil & Gas Corporation (NYSE:MGY) but similarly valued. We will take a look at Independent Bank Group Inc (NASDAQ:IBTX), DiamondRock Hospitality Company (NYSE:DRH), Terex Corporation (NYSE:TEX), and Intra-Cellular Therapies Inc (NASDAQ:ITCI). This group of stocks’ market caps resemble MGY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IBTX 20 74143 -3
DRH 16 38994 -1
TEX 21 147440 -1
ITCI 19 99236 7
Average 19 89953 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $90 million. That figure was $48 million in MGY’s case. Terex Corporation (NYSE:TEX) is the most popular stock in this table. On the other hand DiamondRock Hospitality Company (NYSE:DRH) is the least popular one with only 16 bullish hedge fund positions. Magnolia Oil & Gas Corporation (NYSE:MGY) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 18.6% in 2020 through July 27th but still beat the market by 17.1 percentage points. Hedge funds were also right about betting on MGY as the stock returned 60.8% since Q1 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.