U.S. Markets close in 6 hrs 20 mins

How Did Mellanox Technologies, Ltd. (MLNX) Compare Against Top Hedge Fund Stocks in 2019?

Debasis Saha

We are still in an overall bull market and many stocks that smart money investors were piling into surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 57% each. Hedge funds' top 3 stock picks returned 44.6% this year and beat the S&P 500 ETFs by nearly 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Mellanox Technologies, Ltd. (NASDAQ:MLNX).

Mellanox Technologies, Ltd. (NASDAQ:MLNX) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 39 hedge funds' portfolios at the end of September. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Park Hotels & Resorts Inc. (NYSE:PK), EnCana Corporation (NYSE:ECA), and EPR Properties (NYSE:EPR) to gather more data points. Our calculations also showed that MLNX isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

In the financial world there are a multitude of gauges market participants employ to evaluate their stock investments. A duo of the best gauges are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the top hedge fund managers can trounce the broader indices by a superb amount (see the details here).

[caption id="attachment_746825" align="alignnone" width="1613"] Matthew Halbower of Pentwater Capital[/caption]

Matthew Halbower Pentwater Capital

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now we're going to check out the fresh hedge fund action encompassing Mellanox Technologies, Ltd. (NASDAQ:MLNX).

What have hedge funds been doing with Mellanox Technologies, Ltd. (NASDAQ:MLNX)?

At the end of the third quarter, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MLNX over the last 17 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

Is MLNX A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Alpine Associates, managed by Robert Emil Zoellner, holds the biggest position in Mellanox Technologies, Ltd. (NASDAQ:MLNX). Alpine Associates has a $219.1 million position in the stock, comprising 7.2% of its 13F portfolio. The second largest stake is held by Matthew Halbower of Pentwater Capital Management, with a $186.1 million position; 2.9% of its 13F portfolio is allocated to the company. Some other professional money managers that hold long positions include Carl Tiedemann and Michael Tiedemann's TIG Advisors, Alec Litowitz and Ross Laser's Magnetar Capital and Renaissance Technologies. In terms of the portfolio weights assigned to each position Everett Capital Advisors allocated the biggest weight to Mellanox Technologies, Ltd. (NASDAQ:MLNX), around 14.3% of its 13F portfolio. Twin Capital Management is also relatively very bullish on the stock, earmarking 9.32 percent of its 13F equity portfolio to MLNX.

Since Mellanox Technologies, Ltd. (NASDAQ:MLNX) has faced declining sentiment from the smart money, logic holds that there was a specific group of hedge funds that decided to sell off their entire stakes in the third quarter. At the top of the heap, Nick Niell's Arrowgrass Capital Partners sold off the biggest position of the 750 funds monitored by Insider Monkey, worth about $55.9 million in stock, and Clint Carlson's Carlson Capital was right behind this move, as the fund said goodbye to about $25.5 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's also examine hedge fund activity in other stocks similar to Mellanox Technologies, Ltd. (NASDAQ:MLNX). These stocks are Park Hotels & Resorts Inc. (NYSE:PK), EnCana Corporation (NYSE:ECA), EPR Properties (NYSE:EPR), and Vipshop Holdings Limited (NYSE:VIPS). All of these stocks' market caps match MLNX's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PK,19,378136,-6 ECA,25,262404,-7 EPR,18,201024,-2 VIPS,22,244059,5 Average,21,271406,-2.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $271 million. That figure was $1507 million in MLNX's case. EnCana Corporation (NYSE:ECA) is the most popular stock in this table. On the other hand EPR Properties (NYSE:EPR) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Mellanox Technologies, Ltd. (NASDAQ:MLNX) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately MLNX wasn't nearly as popular as these 20 stocks and hedge funds that were betting on MLNX were disappointed as the stock returned 26.5% so far in 2019 (through 12/23) and trailed 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 65 percent of these stocks already outperformed the market in 2019. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

Related Content