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Should I Avoid Morgan Stanley (MS)?

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·5 min read
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Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 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 Morgan Stanley (NYSE:MS) in this article.

Is Morgan Stanley (NYSE:MS) going to take off soon? The best stock pickers were getting less bullish. The number of bullish hedge fund bets were trimmed by 4 in recent months. Morgan Stanley (NYSE:MS) was in 65 hedge funds' portfolios at the end of September. The all time high for this statistic is 79. Our calculations also showed that MS isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV 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. With all of this in mind we're going to take a glance at the recent hedge fund action regarding Morgan Stanley (NYSE:MS).

Brad Farber Atika Capital
Brad Farber Atika Capital

Brad Farber of Atika Capital

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

At Q3's end, a total of 65 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the second quarter of 2021. On the other hand, there were a total of 70 hedge funds with a bullish position in MS a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Eagle Capital Management held the most valuable stake in Morgan Stanley (NYSE:MS), which was worth $1460.7 million at the end of the third quarter. On the second spot was Fisher Asset Management which amassed $970.6 million worth of shares. GQG Partners, 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 Bridger Management allocated the biggest weight to Morgan Stanley (NYSE:MS), around 4.74% of its 13F portfolio. Eagle Capital Management is also relatively very bullish on the stock, setting aside 4.29 percent of its 13F equity portfolio to MS.

Judging by the fact that Morgan Stanley (NYSE:MS) has experienced declining sentiment from the smart money, it's easy to see that there was a specific group of hedge funds that slashed their full holdings by the end of the third quarter. At the top of the heap, Matthew Stadelman's Diamond Hill Capital dumped the largest position of the "upper crust" of funds watched by Insider Monkey, worth an estimated $347 million in stock, and Doug Silverman and Alexander Klabin's Senator Investment Group was right behind this move, as the fund said goodbye to about $68.8 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 4 funds by the end of the third quarter.

Let's go over hedge fund activity in other stocks similar to Morgan Stanley (NYSE:MS). We will take a look at Texas Instruments Incorporated (NASDAQ:TXN), Sea Limited (NYSE:SE), Shopify Inc (NYSE:SHOP), Medtronic plc (NYSE:MDT), T-Mobile US, Inc. (NASDAQ:TMUS), SAP SE (NYSE:SAP), and United Parcel Service, Inc. (NYSE:UPS). All of these stocks' market caps match MS's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TXN,40,1938965,-10 SE,117,14135309,13 SHOP,73,11451372,-12 MDT,62,2278950,-6 TMUS,89,6928776,-11 SAP,15,1529829,-2 UPS,42,1266269,-10 Average,62.6,5647067,-5.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 62.6 hedge funds with bullish positions and the average amount invested in these stocks was $5647 million. That figure was $4991 million in MS's case. Sea Limited (NYSE:SE) is the most popular stock in this table. On the other hand SAP SE (NYSE:SAP) is the least popular one with only 15 bullish hedge fund positions. Morgan Stanley (NYSE:MS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MS is 50.2. 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. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.6% in 2021 through November 30th and beat the market again by 5.6 percentage points. Unfortunately MS wasn't nearly as popular as these 5 stocks and hedge funds that were betting on MS were disappointed as the stock returned -1.9% since the end of September (through 11/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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