Were Hedge Funds Right About Dumping Marchex, Inc. (MCHX)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Marchex, Inc. (NASDAQ:MCHX) based on that data and determine whether they were really smart about the stock.

Marchex, Inc. (NASDAQ:MCHX) was in 12 hedge funds’ portfolios at the end of the first quarter of 2020. MCHX has seen a decrease in activity from the world’s largest hedge funds of late. There were 17 hedge funds in our database with MCHX holdings at the end of the previous quarter. Our calculations also showed that MCHX isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Today there are plenty of gauges stock market investors put to use to evaluate their stock investments. A duo of the less known gauges are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best money managers can outperform the S&P 500 by a superb amount (see the details here).

David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a peek at the fresh hedge fund action surrounding Marchex, Inc. (NASDAQ:MCHX).

How are hedge funds trading Marchex, Inc. (NASDAQ:MCHX)?

Heading into the second quarter of 2020, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -29% from the fourth quarter of 2019. On the other hand, there were a total of 18 hedge funds with a bullish position in MCHX 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.

The largest stake in Marchex, Inc. (NASDAQ:MCHX) was held by Renaissance Technologies, which reported holding $4 million worth of stock at the end of September. It was followed by Harbert Management with a $3.7 million position. Other investors bullish on the company included P.A.W. CAPITAL PARTNERS, Roumell Asset Management, and Royce & Associates. In terms of the portfolio weights assigned to each position Harbert Management allocated the biggest weight to Marchex, Inc. (NASDAQ:MCHX), around 6.12% of its 13F portfolio. Roumell Asset Management is also relatively very bullish on the stock, designating 3.44 percent of its 13F equity portfolio to MCHX.

Seeing as Marchex, Inc. (NASDAQ:MCHX) has experienced a decline in interest from the aggregate hedge fund industry, we can see that there exists a select few hedge funds that slashed their full holdings in the first quarter. Intriguingly, Frederick DiSanto’s Ancora Advisors cut the biggest stake of the “upper crust” of funds tracked by Insider Monkey, valued at close to $1.7 million in stock, and Israel Englander’s Millennium Management was right behind this move, as the fund dumped about $0.4 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 5 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Marchex, Inc. (NASDAQ:MCHX). These stocks are Perma-Fix Environmental Services, Inc. (NASDAQ:PESI), Emclaire Financial Corp (NASDAQ:EMCF), Sesen Bio, Inc. (NASDAQ:SESN), and Pintec Technology Holdings Limited (NASDAQ:PT). All of these stocks’ market caps match MCHX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PESI 2 1692 -1
EMCF 2 539 0
SESN 5 1892 -1
PT 2 113 1
Average 2.75 1059 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 2.75 hedge funds with bullish positions and the average amount invested in these stocks was $1 million. That figure was $12 million in MCHX’s case. Sesen Bio, Inc. (NASDAQ:SESN) is the most popular stock in this table. On the other hand Perma-Fix Environmental Services, Inc. (NASDAQ:PESI) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Marchex, Inc. (NASDAQ:MCHX) is more popular among hedge funds. 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. Unfortunately MCHX wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MCHX were disappointed as the stock returned 9% during 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.