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Hedge Funds Never Been Less Bullish On Mallinckrodt Public Limited Company (MNK)

Abigail Fisher

In this article you are going to find out whether hedge funds think Mallinckrodt Public Limited Company (NYSE:MNK) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Mallinckrodt Public Limited Company (NYSE:MNK) has experienced a decrease in hedge fund sentiment of late. Our calculations also showed that MNK isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

In the 21st century investor’s toolkit there are numerous signals investors can use to value their stock investments. Two of the most under-the-radar signals are hedge fund and insider trading signals. Our researchers have shown that, historically, those who follow the best picks of the elite investment managers can outperform their index-focused peers by a healthy amount (see the details here).

[caption id="attachment_364894" align="aligncenter" width="394"] James E. Flynn of Deerfield Management[/caption]

James Flynn Deerfield Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let's analyze the latest hedge fund action encompassing Mallinckrodt Public Limited Company (NYSE:MNK).

How are hedge funds trading Mallinckrodt Public Limited Company (NYSE:MNK)?

At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from the fourth quarter of 2019. On the other hand, there were a total of 20 hedge funds with a bullish position in MNK a year ago. With hedge funds' capital changing hands, there exists a few key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

The largest stake in Mallinckrodt Public Limited Company (NYSE:MNK) was held by Armistice Capital, which reported holding $10.3 million worth of stock at the end of September. It was followed by Deerfield Management with a $8 million position. Other investors bullish on the company included Centerbridge Partners, Two Sigma Advisors, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Centerbridge Partners allocated the biggest weight to Mallinckrodt Public Limited Company (NYSE:MNK), around 0.56% of its 13F portfolio. Deerfield Management is also relatively very bullish on the stock, designating 0.25 percent of its 13F equity portfolio to MNK.

Due to the fact that Mallinckrodt Public Limited Company (NYSE:MNK) has witnessed declining sentiment from the smart money, it's safe to say that there were a few hedge funds who sold off their entire stakes last quarter. It's worth mentioning that Steven Boyd's Armistice Capital dropped the biggest position of the "upper crust" of funds followed by Insider Monkey, comprising an estimated $9.3 million in stock. Bill Miller's fund, Miller Value Partners, also dumped its stock, about $5.6 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 2 funds last quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Mallinckrodt Public Limited Company (NYSE:MNK) but similarly valued. These stocks are BRT Apartments Corp (NYSE:BRT), Oasis Midstream Partners LP (NASDAQ:OMP), Immersion Corporation (NASDAQ:IMMR), and Concrete Pumping Holdings, Inc. (NASDAQ:BBCP). This group of stocks' market caps are similar to MNK's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BRT,6,9850,2 OMP,3,2880,-1 IMMR,11,64426,-3 BBCP,8,34588,2 Average,7,27936,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $28 million. That figure was $18 million in MNK's case. Immersion Corporation (NASDAQ:IMMR) is the most popular stock in this table. On the other hand Oasis Midstream Partners LP (NASDAQ:OMP) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Mallinckrodt Public Limited Company (NYSE:MNK) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 13.4% in 2020 through June 22nd but still managed to beat the market by 15.9 percentage points. Hedge funds were also right about betting on MNK as the stock returned 47% so far in Q2 (through June 22nd) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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