Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Monro Muffler Brake Inc (NASDAQ:MNRO).
Is Monro Muffler Brake Inc (NASDAQ:MNRO) a great stock to buy now? Investors who are in the know are taking a bullish view. The number of bullish hedge fund positions moved up by 1 in recent months. Our calculations also showed that MNRO isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
If you'd ask most traders, hedge funds are seen as unimportant, outdated financial vehicles of yesteryear. While there are over 8000 funds in operation at present, We hone in on the aristocrats of this club, approximately 850 funds. Most estimates calculate that this group of people orchestrate the majority of the hedge fund industry's total asset base, and by monitoring their inimitable equity investments, Insider Monkey has unearthed a number of investment strategies that have historically outstripped the market. Insider Monkey's flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_25717" align="aligncenter" width="400"] Steven Cohen of Point72 Asset Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind we're going to analyze the latest hedge fund action encompassing Monro Muffler Brake Inc (NASDAQ:MNRO).
Hedge fund activity in Monro Muffler Brake Inc (NASDAQ:MNRO)
At the end of the fourth quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from one quarter earlier. By comparison, 18 hedge funds held shares or bullish call options in MNRO a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Arlington Value Capital held the most valuable stake in Monro Muffler Brake Inc (NASDAQ:MNRO), which was worth $119.5 million at the end of the third quarter. On the second spot was Marshall Wace LLP which amassed $14.5 million worth of shares. Point72 Asset Management, Royce & Associates, and GAMCO Investors 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 Arlington Value Capital allocated the biggest weight to Monro Muffler Brake Inc (NASDAQ:MNRO), around 8.12% of its 13F portfolio. Sciencast Management is also relatively very bullish on the stock, setting aside 0.22 percent of its 13F equity portfolio to MNRO.
With a general bullishness amongst the heavyweights, key money managers have jumped into Monro Muffler Brake Inc (NASDAQ:MNRO) headfirst. Winton Capital Management, managed by David Harding, assembled the most outsized position in Monro Muffler Brake Inc (NASDAQ:MNRO). Winton Capital Management had $3.8 million invested in the company at the end of the quarter. Philippe Laffont's Coatue Management also initiated a $1 million position during the quarter. The following funds were also among the new MNRO investors: Qing Li's Sciencast Management, Donald Sussman's Paloma Partners, and Karim Abbadi and Edward McBride's Centiva Capital.
Let's check out hedge fund activity in other stocks similar to Monro Muffler Brake Inc (NASDAQ:MNRO). These stocks are Halozyme Therapeutics, Inc. (NASDAQ:HALO), Altera Corporation (NASDAQ:ALTR), Applied Industrial Technologies (NYSE:AIT), and Cactus, Inc. (NYSE:WHD). All of these stocks' market caps resemble MNRO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HALO,25,198183,-1 ALTR,10,212059,-2 AIT,22,115713,0 WHD,17,141028,-2 Average,18.5,166746,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $167 million. That figure was $172 million in MNRO's case. Halozyme Therapeutics, Inc. (NASDAQ:HALO) is the most popular stock in this table. On the other hand Altera Corporation (NASDAQ:ALTR) is the least popular one with only 10 bullish hedge fund positions. Monro Muffler Brake Inc (NASDAQ:MNRO) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately MNRO wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MNRO investors were disappointed as the stock returned -45% during the same time period 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 most of these stocks already outperformed the market in Q1. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.