Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Materion Corp (NYSE:MTRN) changed recently.
Materion Corp (NYSE:MTRN) investors should pay attention to a decrease in activity from the world's largest hedge funds in recent months. MTRN was in 15 hedge funds' portfolios at the end of the second quarter of 2019. There were 17 hedge funds in our database with MTRN positions at the end of the previous quarter. Our calculations also showed that MTRN isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a peek at the latest hedge fund action encompassing Materion Corp (NYSE:MTRN).
How are hedge funds trading Materion Corp (NYSE:MTRN)?
At the end of the second quarter, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -12% from the first quarter of 2019. The graph below displays the number of hedge funds with bullish position in MTRN over the last 16 quarters. With the smart money's sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Mario Gabelli's GAMCO Investors has the most valuable position in Materion Corp (NYSE:MTRN), worth close to $31.4 million, amounting to 0.2% of its total 13F portfolio. Coming in second is Renaissance Technologies, which holds a $18 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other peers that are bullish comprise Israel Englander's Millennium Management, Noam Gottesman's GLG Partners and Ken Fisher's Fisher Asset Management.
Due to the fact that Materion Corp (NYSE:MTRN) has witnessed declining sentiment from hedge fund managers, logic holds that there was a specific group of hedge funds that slashed their entire stakes by the end of the second quarter. Intriguingly, Peter Muller's PDT Partners dumped the largest position of the 750 funds watched by Insider Monkey, comprising an estimated $1.6 million in stock, and Andrew Feldstein and Stephen Siderow's Blue Mountain Capital was right behind this move, as the fund dumped about $1.2 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 2 funds by the end of the second quarter.
Let's also examine hedge fund activity in other stocks similar to Materion Corp (NYSE:MTRN). These stocks are Eventbrite, Inc. (NYSE:EB), Astronics Corporation (NASDAQ:ATRO), Rush Enterprises, Inc. (NASDAQ:RUSHA), and Rambus Inc. (NASDAQ:RMBS). This group of stocks' market caps match MTRN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EB,21,310273,5 ATRO,18,123334,5 RUSHA,20,89775,1 RMBS,16,147460,-1 Average,18.75,167711,2.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $168 million. That figure was $113 million in MTRN's case. Eventbrite, Inc. (NYSE:EB) is the most popular stock in this table. On the other hand Rambus Inc. (NASDAQ:RMBS) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Materion Corp (NYSE:MTRN) is even less popular than RMBS. Hedge funds dodged a bullet by taking a bearish stance towards MTRN. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately MTRN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); MTRN investors were disappointed as the stock returned -9.3% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.