Should I Buy MSG Networks Inc (MSGN)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards MSG Networks Inc (NYSE:MSGN) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Is MSG Networks Inc (NYSE:MSGN) the right pick for your portfolio? Money managers were in a bullish mood. The number of bullish hedge fund positions advanced by 1 recently. MSG Networks Inc (NYSE:MSGN) was in 25 hedge funds’ portfolios at the end of June. The all time high for this statistics is 34. Our calculations also showed that MSGN isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 24 hedge funds in our database with MSGN holdings at the end of March.

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 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we’re going to check out the latest hedge fund action encompassing MSG Networks Inc (NYSE:MSGN).

How are hedge funds trading MSG Networks Inc (NYSE:MSGN)?

At the end of the second quarter, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from one quarter earlier. On the other hand, there were a total of 23 hedge funds with a bullish position in MSGN a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

Is MSGN A Good Stock To Buy?

More specifically, Ariel Investments was the largest shareholder of MSG Networks Inc (NYSE:MSGN), with a stake worth $92.3 million reported as of the end of September. Trailing Ariel Investments was Contrarius Investment Management, which amassed a stake valued at $34.4 million. GAMCO Investors, Sylebra Capital Management, and Arrowstreet Capital 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 Contrarius Investment Management allocated the biggest weight to MSG Networks Inc (NYSE:MSGN), around 3.25% of its 13F portfolio. Ariel Investments is also relatively very bullish on the stock, setting aside 1.41 percent of its 13F equity portfolio to MSGN.

Consequently, key hedge funds were leading the bulls’ herd. Sylebra Capital Management, managed by Daniel Patrick Gibson, assembled the largest position in MSG Networks Inc (NYSE:MSGN). Sylebra Capital Management had $16.4 million invested in the company at the end of the quarter. Peter Muller’s PDT Partners also made a $1.5 million investment in the stock during the quarter. The other funds with brand new MSGN positions are Mika Toikka’s AlphaCrest Capital Management, Dmitry Balyasny’s Balyasny Asset Management, and Michael Gelband’s ExodusPoint Capital.

Let’s now take a look at hedge fund activity in other stocks similar to MSG Networks Inc (NYSE:MSGN). These stocks are Cass Information Systems (NASDAQ:CASS), Boston Private Financial Hldg Inc (NASDAQ:BPFH), The Bancorp, Inc. (NASDAQ:TBBK), Denny’s Corporation (NASDAQ:DENN), B. Riley Financial, Inc. (NASDAQ:RILY), Luther Burbank Corporation (NASDAQ:LBC), and CEL-SCI Corporation (NYSE:CVM). All of these stocks’ market caps match MSGN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CASS 9 14160 0
BPFH 20 28888 6
TBBK 14 68372 -1
DENN 23 57055 3
RILY 16 92685 2
LBC 2 2745 -3
CVM 6 16920 1
Average 12.9 40118 1.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.9 hedge funds with bullish positions and the average amount invested in these stocks was $40 million. That figure was $188 million in MSGN’s case. Denny’s Corporation (NASDAQ:DENN) is the most popular stock in this table. On the other hand Luther Burbank Corporation (NASDAQ:LBC) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks MSG Networks Inc (NYSE:MSGN) is more popular among hedge funds. Our overall hedge fund sentiment score for MSGN is 78.1. 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. 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 21.3% in 2020 through September 25th and still beat the market by 17.7 percentage points. Unfortunately MSGN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MSGN were disappointed as the stock returned -1.1% since the end of 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.