Was The Smart Money Right About Madison Square Garden Sports Corp. (MSGS)?

Is Madison Square Garden Sports Corp. (NYSE:MSGS) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Madison Square Garden Sports Corp. (NYSE:MSGS) was in 44 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 52. MSGS has seen a decrease in enthusiasm from smart money lately. There were 48 hedge funds in our database with MSGS holdings at the end of September. Our calculations also showed that MSGS isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

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At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell 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 we’re going to analyze the new hedge fund action surrounding Madison Square Garden Sports Corp. (NYSE:MSGS).

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

At the end of December, a total of 44 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from one quarter earlier. By comparison, 43 hedge funds held shares or bullish call options in MSGS a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is MSGS A Good Stock To Buy?

More specifically, Silver Lake Partners was the largest shareholder of Madison Square Garden Sports Corp. (NYSE:MSGS), with a stake worth $349.8 million reported as of the end of December. Trailing Silver Lake Partners was Long Pond Capital, which amassed a stake valued at $157.7 million. GAMCO Investors, Maplelane Capital, 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 Tiger Legatus Capital allocated the biggest weight to Madison Square Garden Sports Corp. (NYSE:MSGS), around 10.39% of its 13F portfolio. Long Pond Capital is also relatively very bullish on the stock, dishing out 5.27 percent of its 13F equity portfolio to MSGS.

Since Madison Square Garden Sports Corp. (NYSE:MSGS) has faced declining sentiment from the entirety of the hedge funds we track, logic holds that there exists a select few hedge funds who sold off their full holdings by the end of the fourth quarter. Interestingly, Daniel Sundheim’s D1 Capital Partners cut the biggest position of all the hedgies monitored by Insider Monkey, totaling an estimated $185 million in stock, and Jaime Sterne’s Skye Global Management was right behind this move, as the fund cut about $20.8 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 4 funds by the end of the fourth quarter.

Let’s check out hedge fund activity in other stocks similar to Madison Square Garden Sports Corp. (NYSE:MSGS). We will take a look at Rush Street Interactive, Inc. (NYSE:RSI), Open Lending Corporation (NASDAQ:LPRO), Companhia Energetica Minas Gerais (NYSE:CIG), Sunnova Energy International Inc. (NYSE:NOVA), ASGN Incorporated (NYSE:ASGN), Verint Systems Inc. (NASDAQ:VRNT), and Workiva Inc (NYSE:WK). This group of stocks’ market values are closest to MSGS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RSI 26 224704 26
LPRO 34 685554 11
CIG 12 59210 3
NOVA 32 684620 9
ASGN 14 83196 -7
VRNT 20 596005 -7
WK 19 445062 -1
Average 22.4 396907 4.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.4 hedge funds with bullish positions and the average amount invested in these stocks was $397 million. That figure was $973 million in MSGS’s case. Open Lending Corporation (NASDAQ:LPRO) is the most popular stock in this table. On the other hand Companhia Energetica Minas Gerais (NYSE:CIG) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Madison Square Garden Sports Corp. (NYSE:MSGS) is more popular among hedge funds. Our overall hedge fund sentiment score for MSGS is 76.4. 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 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. Unfortunately MSGS wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MSGS were disappointed as the stock returned 0.4% since the end of the fourth quarter (through 4/30) 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 since 2019.

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