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Were Hedge Funds Right About Mueller Industries (MLI)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 835 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Mueller Industries, Inc. (NYSE:MLI) in this article.

Mueller Industries, Inc. (NYSE:MLI) investors should pay attention to an increase in support from the world’s most elite money managers of late. Our calculations also showed that MLI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 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 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Jeffrey Gates of Gates Capital

We leave no stone unturned when looking for the next great investment idea. For example, Federal Reserve and other Central Banks are tripping over each other to print more money. As a result, we believe gold stocks will outperform fixed income ETFs in the long-term. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a look at the key hedge fund action encompassing Mueller Industries, Inc. (NYSE:MLI).

Hedge fund activity in Mueller Industries, Inc. (NYSE:MLI)

At Q4’s end, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from the previous quarter. On the other hand, there were a total of 10 hedge funds with a bullish position in MLI a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, GAMCO Investors was the largest shareholder of Mueller Industries, Inc. (NYSE:MLI), with a stake worth $125.5 million reported as of the end of September. Trailing GAMCO Investors was Gates Capital Management, which amassed a stake valued at $31 million. Arrowstreet Capital, Royce & Associates, and AltraVue 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 AltraVue Capital allocated the biggest weight to Mueller Industries, Inc. (NYSE:MLI), around 3.71% of its 13F portfolio. Gates Capital Management is also relatively very bullish on the stock, dishing out 1.36 percent of its 13F equity portfolio to MLI.

Now, key hedge funds have jumped into Mueller Industries, Inc. (NYSE:MLI) headfirst. Renaissance Technologies, created the biggest position in Mueller Industries, Inc. (NYSE:MLI). Renaissance Technologies had $2.6 million invested in the company at the end of the quarter. Peter Muller’s PDT Partners also made a $0.9 million investment in the stock during the quarter. The other funds with brand new MLI positions are Joel Greenblatt’s Gotham Asset Management, John Overdeck and David Siegel’s Two Sigma Advisors, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Mueller Industries, Inc. (NYSE:MLI) but similarly valued. These stocks are PagerDuty, Inc. (NYSE:PD), Vonage Holdings Corp. (NASDAQ:VG), Diversified Healthcare Trust (NASDAQ:SNH), and iRhythm Technologies, Inc. (NASDAQ:IRTC). This group of stocks’ market values are closest to MLI’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PD 15 33030 4
VG 35 269101 2
SNH 9 32625 -4
IRTC 22 222026 3
Average 20.25 139196 1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $139 million. That figure was $215 million in MLI’s case. Vonage Holdings Corp. (NASDAQ:VG) is the most popular stock in this table. On the other hand Diversified Healthcare Trust (NASDAQ:SNH) is the least popular one with only 9 bullish hedge fund positions. Mueller Industries, Inc. (NYSE:MLI) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately MLI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MLI were disappointed as the stock returned -23.4% during the same time period 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.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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