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Hedge Funds Have Never Been This Bullish On Mercury Systems Inc (MRCY)

Abigail Fisher

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 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 Mercury Systems Inc (NASDAQ:MRCY).

Mercury Systems Inc (NASDAQ:MRCY) has experienced an increase in activity from the world's largest hedge funds recently. MRCY was in 22 hedge funds' portfolios at the end of September. There were 21 hedge funds in our database with MRCY positions at the end of the previous quarter. Our calculations also showed that MRCY 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.

5 Most Popular Stocks Among Hedge Funds
5 Most Popular Stocks Among Hedge Funds

To the average investor there are numerous gauges stock traders use to appraise stocks. Some of the most innovative gauges are hedge fund and insider trading signals. Our researchers have shown that, historically, those who follow the top picks of the top investment managers can trounce their index-focused peers by a very impressive amount (see the details here).

[caption id="attachment_26388" align="aligncenter" width="468"] Lee Ainslie of Maverick Capital[/caption]

Lee Ainslie MAVERICK CAPITAL
Lee Ainslie MAVERICK CAPITAL

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's view the key hedge fund action encompassing Mercury Systems Inc (NASDAQ:MRCY).

What does smart money think about Mercury Systems Inc (NASDAQ:MRCY)?

At the end of the third quarter, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from the second quarter of 2019. On the other hand, there were a total of 11 hedge funds with a bullish position in MRCY a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Mercury Systems Inc (NASDAQ:MRCY) was held by Driehaus Capital, which reported holding $20.6 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $11 million position. Other investors bullish on the company included G2 Investment Partners Management, D E Shaw, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position G2 Investment Partners Management allocated the biggest weight to Mercury Systems Inc (NASDAQ:MRCY), around 3.01% of its 13F portfolio. Driehaus Capital is also relatively very bullish on the stock, dishing out 0.67 percent of its 13F equity portfolio to MRCY.

With a general bullishness amongst the heavyweights, some big names have jumped into Mercury Systems Inc (NASDAQ:MRCY) headfirst. Waratah Capital Advisors, managed by Brad Dunkley and Blair Levinsky, assembled the biggest position in Mercury Systems Inc (NASDAQ:MRCY). Waratah Capital Advisors had $3.8 million invested in the company at the end of the quarter. David Harding's Winton Capital Management also initiated a $2.8 million position during the quarter. The other funds with new positions in the stock are Lee Ainslie's Maverick Capital, Israel Englander's Millennium Management, and Minhua Zhang's Weld Capital Management.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Mercury Systems Inc (NASDAQ:MRCY) but similarly valued. We will take a look at Aurora Cannabis Inc. (NYSE:ACB), Luckin Coffee Inc. (NASDAQ:LK), Brunswick Corporation (NYSE:BC), and WPX Energy Inc (NYSE:WPX). All of these stocks' market caps resemble MRCY's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ACB,10,17463,0 LK,23,300025,-8 BC,28,564304,-2 WPX,44,582500,4 Average,26.25,366073,-1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.25 hedge funds with bullish positions and the average amount invested in these stocks was $366 million. That figure was $113 million in MRCY's case. WPX Energy Inc (NYSE:WPX) is the most popular stock in this table. On the other hand Aurora Cannabis Inc. (NYSE:ACB) is the least popular one with only 10 bullish hedge fund positions. Mercury Systems Inc (NASDAQ:MRCY) is not the least popular stock in this group but hedge fund interest is still below average. 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 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. Unfortunately MRCY wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MRCY investors were disappointed as the stock returned -9.8% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.

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

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