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In this article we will take a look at whether hedge funds think Magnolia Oil & Gas Corporation (NASDAQ:MGY) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Is Magnolia Oil & Gas Corporation (NASDAQ:MGY) undervalued? The best stock pickers are getting more bullish. The number of long hedge fund positions moved up by 2 lately. Our calculations also showed that MGY 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.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 S&P 500 ETFs by 58 percentage points since March 2017 (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.
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Ron Gutfleish of Elm Ridge Capital[/caption]
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 take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. 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. With all of this in mind let's take a glance at the recent hedge fund action surrounding Magnolia Oil & Gas Corporation (NASDAQ:MGY).
What have hedge funds been doing with Magnolia Oil & Gas Corporation (NASDAQ:MGY)?
At the end of the first quarter, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from the previous quarter. On the other hand, there were a total of 32 hedge funds with a bullish position in MGY 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, Encompass Capital Advisors held the most valuable stake in Magnolia Oil & Gas Corporation (NASDAQ:MGY), which was worth $18 million at the end of the third quarter. On the second spot was Omega Advisors which amassed $9.8 million worth of shares. Citadel Investment Group, Alyeska Investment Group, and GLG Partners 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 Encompass Capital Advisors allocated the biggest weight to Magnolia Oil & Gas Corporation (NASDAQ:MGY), around 1.93% of its 13F portfolio. Omega Advisors is also relatively very bullish on the stock, earmarking 1.27 percent of its 13F equity portfolio to MGY.
With a general bullishness amongst the heavyweights, specific money managers have jumped into Magnolia Oil & Gas Corporation (NASDAQ:MGY) headfirst. Alyeska Investment Group, managed by Anand Parekh, established the biggest position in Magnolia Oil & Gas Corporation (NASDAQ:MGY). Alyeska Investment Group had $3 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also initiated a $2.2 million position during the quarter. The following funds were also among the new MGY investors: Peter Muller's PDT Partners, Renaissance Technologies, and Dmitry Balyasny's Balyasny Asset Management.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Magnolia Oil & Gas Corporation (NASDAQ:MGY) but similarly valued. We will take a look at Independent Bank Group Inc (NASDAQ:IBTX), DiamondRock Hospitality Company (NYSE:DRH), Terex Corporation (NYSE:TEX), and Intra-Cellular Therapies Inc (NASDAQ:ITCI). This group of stocks' market values resemble MGY's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position IBTX,20,74143,-3 DRH,16,38994,-1 TEX,21,147440,-1 ITCI,19,99236,7 Average,19,89953,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $90 million. That figure was $48 million in MGY's case. Terex Corporation (NYSE:TEX) is the most popular stock in this table. On the other hand DiamondRock Hospitality Company (NYSE:DRH) is the least popular one with only 16 bullish hedge fund positions. Magnolia Oil & Gas Corporation (NASDAQ:MGY) is not the most popular stock in this group but hedge fund interest is still above average. 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 gained 12.2% in 2020 through June 17th but still beat the market by 14.8 percentage points. Hedge funds were also right about betting on MGY as the stock returned 51% in Q2 (through June 17th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.