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Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in MP Materials Corp. (NYSE:MP)? The smart money sentiment can provide an answer to this question.
Is MP Materials Corp. (NYSE:MP) the right pick for your portfolio? Investors who are in the know were becoming less hopeful. The number of bullish hedge fund positions retreated by 9 recently. MP Materials Corp. (NYSE:MP) was in 20 hedge funds' portfolios at the end of June. The all time high for this statistic is 32. Our calculations also showed that MP isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we're going to take a peek at the latest hedge fund action surrounding MP Materials Corp. (NYSE:MP).
Do Hedge Funds Think MP Is A Good Stock To Buy Now?
At the end of the second quarter, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -31% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MP over the last 24 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey's hedge fund database, JHL Capital Group, managed by James H. Litinsky, holds the largest position in MP Materials Corp. (NYSE:MP). JHL Capital Group has a $1.6296 billion position in the stock, comprising 100% of its 13F portfolio. The second largest stake is held by Daniel Gold of QVT Financial, with a $782.3 million position; 51.7% of its 13F portfolio is allocated to the company. Other professional money managers that are bullish consist of Leon Cooperman's Omega Advisors, Richard Driehaus's Driehaus Capital and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position JHL Capital Group allocated the biggest weight to MP Materials Corp. (NYSE:MP), around 100% of its 13F portfolio. QVT Financial is also relatively very bullish on the stock, setting aside 51.65 percent of its 13F equity portfolio to MP.
Judging by the fact that MP Materials Corp. (NYSE:MP) has witnessed a decline in interest from the aggregate hedge fund industry, we can see that there is a sect of fund managers that elected to cut their positions entirely last quarter. At the top of the heap, Parvinder Thiara's Athanor Capital dropped the largest stake of the 750 funds monitored by Insider Monkey, comprising close to $77.4 million in stock, and Robert Henry Lynch's Aristeia Capital was right behind this move, as the fund dumped about $18.2 million worth. These transactions are important to note, as total hedge fund interest dropped by 9 funds last quarter.
Let's now take a look at hedge fund activity in other stocks similar to MP Materials Corp. (NYSE:MP). These stocks are Littelfuse, Inc. (NASDAQ:LFUS), Thor Industries, Inc. (NYSE:THO), Endava plc (NYSE:DAVA), SYNNEX Corporation (NYSE:SNX), Callaway Golf Company (NYSE:ELY), Lumentum Holdings Inc (NASDAQ:LITE), and Huaneng Power International Inc (NYSE:HNP). All of these stocks' market caps resemble MP's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LFUS,27,483266,6 THO,26,179875,5 DAVA,16,197353,7 SNX,20,629311,5 ELY,39,559436,-1 LITE,29,334727,-2 HNP,4,4331,0 Average,23,341186,2.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $341 million. That figure was $2566 million in MP's case. Callaway Golf Company (NYSE:ELY) is the most popular stock in this table. On the other hand Huaneng Power International Inc (NYSE:HNP) is the least popular one with only 4 bullish hedge fund positions. MP Materials Corp. (NYSE:MP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MP is 37.6. 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 negative signal and 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 24% in 2021 through October 22nd and surpassed the market again by 1.6 percentage points. Unfortunately MP wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); MP investors were disappointed as the stock returned -0.9% since the end of June (through 10/22) 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 most of these stocks already outperformed the market in 2021.
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Disclosure: None. This article was originally published at Insider Monkey.