Is Montage Resources Corporation (NYSE:MR) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Montage Resources Corporation (NYSE:MR) has experienced a decrease in hedge fund sentiment in recent months. MR was in 12 hedge funds' portfolios at the end of the third quarter of 2019. There were 15 hedge funds in our database with MR positions at the end of the previous quarter. Our calculations also showed that MR isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_746893" align="aligncenter" width="473"] Paul Marshall of Marshall Wace[/caption]
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 based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We're going to take a look at the new hedge fund action regarding Montage Resources Corporation (NYSE:MR).
Hedge fund activity in Montage Resources Corporation (NYSE:MR)
At Q3's end, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MR over the last 17 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Raging Capital Management was the largest shareholder of Montage Resources Corporation (NYSE:MR), with a stake worth $6 million reported as of the end of September. Trailing Raging Capital Management was HPS Investment Partners, which amassed a stake valued at $3.5 million. Marshall Wace, Fondren Management, and Lyon Street 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 HPS Investment Partners allocated the biggest weight to Montage Resources Corporation (NYSE:MR), around 8.73% of its 13F portfolio. Raging Capital Management is also relatively very bullish on the stock, earmarking 0.97 percent of its 13F equity portfolio to MR.
Seeing as Montage Resources Corporation (NYSE:MR) has witnessed bearish sentiment from the aggregate hedge fund industry, it's safe to say that there was a specific group of hedge funds that decided to sell off their entire stakes in the third quarter. Intriguingly, Renaissance Technologies dropped the biggest position of the "upper crust" of funds followed by Insider Monkey, worth close to $0.5 million in stock. Noam Gottesman's fund, GLG Partners, also dropped its stock, about $0.4 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 3 funds in the third quarter.
Let's also examine hedge fund activity in other stocks similar to Montage Resources Corporation (NYSE:MR). These stocks are Marchex, Inc. (NASDAQ:MCHX), Capitala Finance Corp (NASDAQ:CPTA), Atlanticus Holdings Corp (NASDAQ:ATLC), and Fonar Corporation (NASDAQ:FONR). This group of stocks' market caps match MR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MCHX,17,21360,0 CPTA,2,1591,-1 ATLC,2,3385,0 FONR,9,14081,1 Average,7.5,10104,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.5 hedge funds with bullish positions and the average amount invested in these stocks was $10 million. That figure was $15 million in MR's case. Marchex, Inc. (NASDAQ:MCHX) is the most popular stock in this table. On the other hand Capitala Finance Corp (NASDAQ:CPTA) is the least popular one with only 2 bullish hedge fund positions. Montage Resources Corporation (NYSE:MR) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on MR as the stock returned 30.7% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.