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Should You Avoid Moneygram International Inc (MGI)?

Amid an overall bull market, many stocks that smart money investors were collectively bullish on 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. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.4% through the end of November and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Moneygram International Inc (NASDAQ:MGI) has seen a decrease in support from the world’s most elite money managers in recent months. Our calculations also showed that MGI 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 21st century investor’s toolkit there are a lot of formulas market participants put to use to assess publicly traded companies. A pair of the most under-the-radar formulas are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the best picks of the elite hedge fund managers can outperform their index-focused peers by a very impressive margin (see the details here).

Mario Gabelli of GAMCO Investors

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. Let’s take a gander at the latest hedge fund action surrounding Moneygram International Inc (NASDAQ:MGI).

How are hedge funds trading Moneygram International Inc (NASDAQ:MGI)?

At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -23% from the previous quarter. On the other hand, there were a total of 20 hedge funds with a bullish position in MGI a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

Among these funds, Beach Point Capital Management held the most valuable stake in Moneygram International Inc (NASDAQ:MGI), which was worth $11.7 million at the end of the third quarter. On the second spot was Millennium Management which amassed $1.3 million worth of shares. CSat Investment Advisory, GAMCO Investors, 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 Beach Point Capital Management allocated the biggest weight to Moneygram International Inc (NASDAQ:MGI), around 4.5% of its 13F portfolio. CSat Investment Advisory is also relatively very bullish on the stock, earmarking 0.25 percent of its 13F equity portfolio to MGI.

Because Moneygram International Inc (NASDAQ:MGI) has faced declining sentiment from the smart money, logic holds that there exists a select few fund managers that decided to sell off their entire stakes last quarter. Interestingly, Cliff Asness’s AQR Capital Management dropped the biggest stake of all the hedgies followed by Insider Monkey, comprising close to $3.4 million in stock, and Austin Wiggins Hopper’s AWH Capital was right behind this move, as the fund sold off about $0.5 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 3 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to Moneygram International Inc (NASDAQ:MGI). These stocks are PDL BioPharma Inc. (NASDAQ:PDLI), American Realty Investors, Inc. (NYSE:ARL), Kandi Technologies Group, Inc. (NASDAQ:KNDI), and Superior Group of Companies, Inc. (NASDAQ:SGC). This group of stocks’ market values match MGI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PDLI 17 43582 4
ARL 1 569 0
KNDI 3 1747 0
SGC 3 4052 1
Average 6 12488 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $12 million. That figure was $16 million in MGI’s case. PDL BioPharma Inc. (NASDAQ:PDLI) is the most popular stock in this table. On the other hand American Realty Investors, Inc. (NYSE:ARL) is the least popular one with only 1 bullish hedge fund positions. Moneygram International Inc (NASDAQ:MGI) 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. 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 MGI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MGI were disappointed as the stock returned -22.9% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.

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

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