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Matthews International Corp (MATW): Hedge Funds In Wait-and-See Mode

In this article you are going to find out whether hedge funds think Matthews International Corp (NASDAQ:MATW) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Matthews International Corp (NASDAQ:MATW) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 9 hedge funds’ portfolios at the end of the first quarter of 2020. At the end of this article we will also compare MATW to other stocks including Phreesia, Inc. (NYSE:PHR), Five Point Holdings, LLC (NYSE:FPH), and Gol Linhas Aereas Inteligentes SA (NYSE:GOL) to get a better sense of its popularity.

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

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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.

John Rogers Ariel Investments

John Rogers of Ariel Investments

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a look at the recent hedge fund action surrounding Matthews International Corp (NASDAQ:MATW).

How have hedgies been trading Matthews International Corp (NASDAQ:MATW)?

Heading into the second quarter of 2020, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. By comparison, 12 hedge funds held shares or bullish call options in MATW 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 Matthews International Corp (NASDAQ:MATW) was held by GAMCO Investors, which reported holding $14.4 million worth of stock at the end of September. It was followed by Ariel Investments with a $6 million position. Other investors bullish on the company included Rutabaga Capital Management, Millennium Management, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Rutabaga Capital Management allocated the biggest weight to Matthews International Corp (NASDAQ:MATW), around 2.85% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, setting aside 0.5 percent of its 13F equity portfolio to MATW.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Winton Capital Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Citadel Investment Group).

Let’s check out hedge fund activity in other stocks similar to Matthews International Corp (NASDAQ:MATW). We will take a look at Phreesia, Inc. (NYSE:PHR), Five Point Holdings, LLC (NYSE:FPH), Gol Linhas Aereas Inteligentes SA (NYSE:GOL), and Avaya Holdings Corp. (NYSE:AVYA). This group of stocks’ market valuations match MATW’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PHR 8 51620 -8
FPH 13 174951 -2
GOL 11 39509 -1
AVYA 27 142047 -12
Average 14.75 102032 -5.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $102 million. That figure was $33 million in MATW’s case. Avaya Holdings Corp. (NYSE:AVYA) is the most popular stock in this table. On the other hand Phreesia, Inc. (NYSE:PHR) is the least popular one with only 8 bullish hedge fund positions. Matthews International Corp (NASDAQ:MATW) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 13.4% in 2020 through June 22nd and surpassed the market by 15.9 percentage points. Unfortunately MATW wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); MATW investors were disappointed as the stock returned -23.7% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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