Was The Smart Money Right About Marathon Petroleum Corp (MPC)?

While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Marathon Petroleum Corp (NYSE:MPC).

Is Marathon Petroleum Corp (NYSE:MPC) a good stock to buy now? Money managers were turning less bullish. The number of long hedge fund bets fell by 13 recently. Marathon Petroleum Corp (NYSE:MPC) was in 43 hedge funds’ portfolios at the end of December. The all time high for this statistic is 72. Our calculations also showed that MPC 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.

William Harnisch

William Harnisch of Peconic Partners LLC

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 let’s take a peek at the recent hedge fund action regarding Marathon Petroleum Corp (NYSE:MPC).

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

At the end of December, a total of 43 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -23% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MPC over the last 22 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Elliott Investment Management held the most valuable stake in Marathon Petroleum Corp (NYSE:MPC), which was worth $400 million at the end of the fourth quarter. On the second spot was Baupost Group which amassed $318.1 million worth of shares. Holocene Advisors, Citadel Investment Group, and Millennium Management 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 Scopia Capital allocated the biggest weight to Marathon Petroleum Corp (NYSE:MPC), around 8.29% of its 13F portfolio. Wexford Capital is also relatively very bullish on the stock, setting aside 5.13 percent of its 13F equity portfolio to MPC.

Judging by the fact that Marathon Petroleum Corp (NYSE:MPC) has witnessed declining sentiment from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of fund managers who sold off their full holdings in the fourth quarter. It’s worth mentioning that Robert Pitts’s Steadfast Capital Management dropped the largest position of the 750 funds followed by Insider Monkey, comprising close to $21.3 million in stock. Steven Tananbaum’s fund, GoldenTree Asset Management, also sold off its stock, about $19.2 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 13 funds in the fourth quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Marathon Petroleum Corp (NYSE:MPC). We will take a look at Zscaler, Inc. (NASDAQ:ZS), Ecopetrol S.A. (NYSE:EC), Interactive Brokers Group, Inc. (NASDAQ:IBKR), Paycom Software Inc (NYSE:PAYC), Sun Life Financial Inc. (NYSE:SLF), Li Auto Inc. (NASDAQ:LI), and StoneCo Ltd. (NASDAQ:STNE). All of these stocks’ market caps are closest to MPC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ZS 35 1208264 9
EC 7 102902 0
IBKR 28 1108907 0
PAYC 35 748935 -3
SLF 19 87210 6
LI 31 497858 5
STNE 47 3628999 9
Average 28.9 1054725 3.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.9 hedge funds with bullish positions and the average amount invested in these stocks was $1055 million. That figure was $1884 million in MPC’s case. StoneCo Ltd. (NASDAQ:STNE) is the most popular stock in this table. On the other hand Ecopetrol S.A. (NYSE:EC) is the least popular one with only 7 bullish hedge fund positions. Marathon Petroleum Corp (NYSE:MPC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MPC is 54.9. 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. Hedge funds were also right about betting on MPC as the stock returned 36.1% since the end of Q4 (through 4/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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