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MSC Industrial Direct Co Inc (MSM): Hedge Funds Are Snapping Up

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like MSC Industrial Direct Co Inc (NYSE:MSM).

MSC Industrial Direct Co Inc (NYSE:MSM) was in 21 hedge funds’ portfolios at the end of the third quarter of 2019. MSM has experienced an increase in hedge fund interest recently. There were 16 hedge funds in our database with MSM holdings at the end of the previous quarter. Our calculations also showed that MSM isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Donald Yacktman of Yacktman Asset Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s take a look at the recent hedge fund action surrounding MSC Industrial Direct Co Inc (NYSE:MSM).

How are hedge funds trading MSC Industrial Direct Co Inc (NYSE:MSM)?

At the end of the third quarter, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of 31% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards MSM over the last 17 quarters. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

More specifically, AQR Capital Management was the largest shareholder of MSC Industrial Direct Co Inc (NYSE:MSM), with a stake worth $22.2 million reported as of the end of September. Trailing AQR Capital Management was Yacktman Asset Management, which amassed a stake valued at $13.4 million. Renaissance Technologies, Millennium Management, and D E Shaw 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 Levin Capital Strategies allocated the biggest weight to MSC Industrial Direct Co Inc (NYSE:MSM), around 0.17% of its 13F portfolio. Yacktman Asset Management is also relatively very bullish on the stock, designating 0.17 percent of its 13F equity portfolio to MSM.

With a general bullishness amongst the heavyweights, key hedge funds were breaking ground themselves. Yacktman Asset Management, managed by Donald Yacktman, assembled the most valuable position in MSC Industrial Direct Co Inc (NYSE:MSM). Yacktman Asset Management had $13.4 million invested in the company at the end of the quarter. John A. Levin’s Levin Capital Strategies also initiated a $1.5 million position during the quarter. The following funds were also among the new MSM investors: Paul Marshall and Ian Wace’s Marshall Wace, Lee Ainslie’s Maverick Capital, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as MSC Industrial Direct Co Inc (NYSE:MSM) but similarly valued. We will take a look at Stifel Financial Corp. (NYSE:SF), Nomad Foods Limited (NYSE:NOMD), FTI Consulting, Inc. (NYSE:FCN), and IBERIABANK Corporation (NASDAQ:IBKC). This group of stocks’ market caps resemble MSM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SF 12 154909 -3
NOMD 37 486749 5
FCN 18 138946 1
IBKC 19 163668 -6
Average 21.5 236068 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $236 million. That figure was $90 million in MSM’s case. Nomad Foods Limited (NYSE:NOMD) is the most popular stock in this table. On the other hand Stifel Financial Corp. (NYSE:SF) is the least popular one with only 12 bullish hedge fund positions. MSC Industrial Direct Co Inc (NYSE:MSM) 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately MSM wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MSM investors were disappointed as the stock returned 2.2% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.

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

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