Should I Avoid Martin Marietta Materials, Inc. (MLM)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Martin Marietta Materials, Inc. (NYSE:MLM).

Is Martin Marietta Materials, Inc. (NYSE:MLM) undervalued? Hedge funds were in a pessimistic mood. The number of bullish hedge fund bets shrunk by 7 recently. Martin Marietta Materials, Inc. (NYSE:MLM) was in 34 hedge funds’ portfolios at the end of June. The all time high for this statistic is 52. Our calculations also showed that MLM isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

In the eyes of most investors, hedge funds are viewed as underperforming, outdated financial vehicles of years past. While there are more than 8000 funds trading at present, Our experts choose to focus on the masters of this group, around 850 funds. It is estimated that this group of investors watch over most of the smart money’s total capital, and by observing their top stock picks, Insider Monkey has figured out several investment strategies that have historically beaten the market. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Also, our monthly newsletter’s portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let’s check out the new hedge fund action surrounding Martin Marietta Materials, Inc. (NYSE:MLM).

Do Hedge Funds Think MLM Is A Good Stock To Buy Now?

At the end of June, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MLM over the last 24 quarters. With hedge funds’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Select Equity Group, managed by Robert Joseph Caruso, holds the largest position in Martin Marietta Materials, Inc. (NYSE:MLM). Select Equity Group has a $1.0877 billion position in the stock, comprising 3.7% of its 13F portfolio. Sitting at the No. 2 spot is Gardner Russo & Gardner, led by Tom Russo, holding a $434.8 million position; the fund has 3.7% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism contain Panayotis Takis Sparaggis’s Alkeon Capital Management, Seth Rosen’s Nitorum Capital and Wallace Weitz’s Wallace R. Weitz & Co.. In terms of the portfolio weights assigned to each position Cartenna Capital allocated the biggest weight to Martin Marietta Materials, Inc. (NYSE:MLM), around 4.09% of its 13F portfolio. Select Equity Group is also relatively very bullish on the stock, setting aside 3.72 percent of its 13F equity portfolio to MLM.

Because Martin Marietta Materials, Inc. (NYSE:MLM) has witnessed a decline in interest from the aggregate hedge fund industry, it’s safe to say that there exists a select few money managers that slashed their full holdings heading into Q3. Interestingly, John Armitage’s Egerton Capital Limited sold off the biggest stake of the 750 funds watched by Insider Monkey, comprising close to $60.5 million in stock, and Gregg Moskowitz’s Interval Partners was right behind this move, as the fund dropped about $5.8 million worth. These transactions are important to note, as total hedge fund interest fell by 7 funds heading into Q3.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Martin Marietta Materials, Inc. (NYSE:MLM) but similarly valued. These stocks are Edison International (NYSE:EIX), Extra Space Storage, Inc. (NYSE:EXR), Kellogg Company (NYSE:K), Paycom Software Inc (NYSE:PAYC), Western Digital Corporation (NASDAQ:WDC), Royal Caribbean Cruises Ltd. (NYSE:RCL), and Dover Corporation (NYSE:DOV). This group of stocks’ market values resemble MLM’s market value.

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As you can see these stocks had an average of 34 hedge funds with bullish positions and the average amount invested in these stocks was $944 million. That figure was $2015 million in MLM’s case. Western Digital Corporation (NASDAQ:WDC) is the most popular stock in this table. On the other hand Edison International (NYSE:EIX) is the least popular one with only 18 bullish hedge fund positions. Martin Marietta Materials, Inc. (NYSE:MLM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MLM is 38.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 21.8% in 2021 through October 11th and surpassed the market again by 4.4 percentage points. Unfortunately MLM wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); MLM investors were disappointed as the stock returned -0.2% since the end of June (through 10/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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

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