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Mercer International Inc. (MERC): Are Hedge Funds Right About This Stock?

“Market conditions are changing. The continued rise in interest rates suggests we are in the early stages of a bond bear market, which could intensify as central banks withdraw liquidity. The receding tide of liquidity will start to reveal more rocks beyond what has been exposed in emerging markets so far, and the value of a value discipline will be in avoiding the biggest capital-destroying rocks. If a rock emerges on the crowded shore of U.S. momentum, it could result in a major liquidity challenge, as momentum is often most intense on the downside as a crowded trade reverses. So investors are facing a large potential trade-off right now: continue to bet on the current dominance of momentum and the S&P 500, or bet on change and take an active value bet in names with attractive value and optionality, but with negative momentum,” said Clearbridge Investments in its market commentary. We aren’t sure whether long-term interest rates will top 5% and value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Mercer International Inc. (NASDAQ:MERC).

Mercer International Inc. (NASDAQ:MERC) has seen an increase in activity from the world’s largest hedge funds recently. Our calculations also showed that merc isn’t among the 30 most popular stocks among hedge funds.

In the 21st century investor’s toolkit there are numerous tools shareholders can use to evaluate stocks. A duo of the best tools are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the best picks of the elite hedge fund managers can trounce the S&P 500 by a significant amount (see the details here).

MILLENNIUM MANAGEMENT

Let’s take a peek at the new hedge fund action regarding Mercer International Inc. (NASDAQ:MERC).

What does the smart money think about Mercer International Inc. (NASDAQ:MERC)?

At the end of the third quarter, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MERC over the last 13 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with MERC Positions

According to Insider Monkey’s hedge fund database, Jim Simons’s Renaissance Technologies has the largest position in Mercer International Inc. (NASDAQ:MERC), worth close to $49.8 million, accounting for 0.1% of its total 13F portfolio. Sitting at the No. 2 spot is Gates Capital Management, led by Jeffrey Gates, holding a $49.1 million position; 1.2% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors with similar optimism comprise Jonathan Kolatch’s Redwood Capital Management, Tom Wagner and Ara Cohen’s Knighthead Capital and Israel Englander’s Millennium Management.

Consequently, specific money managers were leading the bulls’ herd. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, created the most valuable position in Mercer International Inc. (NASDAQ:MERC). Marshall Wace LLP had $0.8 million invested in the company at the end of the quarter. Matthew Hulsizer’s PEAK6 Capital Management also initiated a $0.4 million position during the quarter. The only other fund with a new position in the stock is Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Let’s check out hedge fund activity in other stocks similar to Mercer International Inc. (NASDAQ:MERC). We will take a look at Nexeo Solutions, Inc. (NASDAQ:NXEO), QAD Inc. (NASDAQ:QADA), Standard Motor Products, Inc. (NYSE:SMP), and Vocera Communications Inc (NYSE:VCRA). This group of stocks’ market valuations resemble MERC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NXEO 30 531459 9
QADA 16 162775 1
SMP 10 132232 4
VCRA 11 91228 -4
Average 16.75 229424 2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $229 million. That figure was $215 million in MERC’s case. Nexeo Solutions, Inc. (NASDAQ:NXEO) is the most popular stock in this table. On the other hand Standard Motor Products, Inc. (NYSE:SMP) is the least popular one with only 10 bullish hedge fund positions. Mercer International Inc. (NASDAQ:MERC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard NXEO might be a better candidate to consider a long position.

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

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