Should You Add Media General, Inc. (MEG) to Your Portfolio?

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

In this article, we are going to see whether or not Media General, Inc. (NYSE:MEG) is a stock worth buying. Looking at the stock, we can see that money managers are getting less bullish, as the number of bullish hedge fund positions declined by three lately. At the end of this article we will also compare MEG to other stocks including J&J Snack Foods Corp. (NASDAQ:JJSF), Dril-Quip, Inc. (NYSE:DRQ), and Terex Corporation (NYSE:TEX) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

Now, we’re going to take a gander at the fresh action surrounding Media General, Inc. (NYSE:MEG).

How are hedge funds trading Media General, Inc. (NYSE:MEG)?

At the end of the third quarter, 31 investors tracked by Insider Monkey were long Media General, down by 9% over the quarter. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Jonathan Auerbach’s Hound Partners has the largest position in Media General, Inc. (NYSE:MEG), worth close to $160.9 million, amounting to 4.3% of its total 13F portfolio. Sitting at the No. 2 spot is Jet Capital Investors, managed by Matthew Mark, which holds a $88.6 million position; the fund has 6.2% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions consist of Mario Gabelli’s GAMCO Investors, Glenn J. Krevlin’s Glenhill Advisors, and Carl Tiedemann and Michael Tiedemann’s TIG Advisors.

Due to the fact that Media General, Inc. (NYSE:MEG) has experienced bearish sentiment from the aggregate hedge fund industry, it’s safe to say that there lies a certain “tier” of fund managers who were dropping their positions entirely by the end of the third quarter. Intriguingly, Warren Buffett’s Berkshire Hathaway cut the largest position of the 700 funds watched by Insider Monkey, totaling close to $59.7 million in stock, and John Orrico’s Water Island Capital was right behind this move, as the fund dropped about $16.3 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 3 funds by the end of the third quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Media General, Inc. (NYSE:MEG) but similarly valued. We will take a look at J&J Snack Foods Corp. (NASDAQ:JJSF), Dril-Quip, Inc. (NYSE:DRQ), Terex Corporation (NYSE:TEX), and Rowan Companies PLC (NYSE:RDC). This group of stocks’ market values resemble MEG’s market value.

As you can see these stocks had an average of 21 funds holding long positions and the average amount invested in these stocks was $243 million, compared to $751 million in MEG’s case. Rowan Companies PLC (NYSE:RDC) is the most popular stock in this table. On the other hand J&J Snack Foods Corp. (NASDAQ:JJSF) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Media General, Inc. (NYSE:MEG) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.