The elite funds run by legendary investors such as David Tepper and Dan Loeb make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don't follow. Because of their pay structures, they have strong incentives to do the research necessary to beat the market. That's why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at Medidata Solutions Inc (NASDAQ:MDSO) from the perspective of those elite funds.
Is Medidata Solutions Inc (NASDAQ:MDSO) ready to rally soon? Prominent investors are getting more optimistic. The number of bullish hedge fund positions went up by 5 lately. Our calculations also showed that mdso isn't among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 40 percentage points since May 2014 through May 30, 2019 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Let's analyze the recent hedge fund action encompassing Medidata Solutions Inc (NASDAQ:MDSO).
What does smart money think about Medidata Solutions Inc (NASDAQ:MDSO)?
At the end of the first quarter, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 45% from the fourth quarter of 2018. On the other hand, there were a total of 10 hedge funds with a bullish position in MDSO a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Royce & Associates was the largest shareholder of Medidata Solutions Inc (NASDAQ:MDSO), with a stake worth $80.1 million reported as of the end of March. Trailing Royce & Associates was Polar Capital, which amassed a stake valued at $58.2 million. Echo Street Capital Management, Millennium Management, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.
Consequently, key money managers have been driving this bullishness. Diker Management, managed by Mark N. Diker, created the most outsized position in Medidata Solutions Inc (NASDAQ:MDSO). Diker Management had $6 million invested in the company at the end of the quarter. Jaime Sterne's Skye Global Management also made a $2.4 million investment in the stock during the quarter. The following funds were also among the new MDSO investors: D. E. Shaw's D E Shaw, Andrew Feldstein and Stephen Siderow's Blue Mountain Capital, and Matthew Hulsizer's PEAK6 Capital Management.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Medidata Solutions Inc (NASDAQ:MDSO) but similarly valued. We will take a look at Science Applications International Corp (NYSE:SAIC), Americold Realty Trust (NYSE:COLD), Life Storage, Inc. (NYSE:LSI), and MAXIMUS, Inc. (NYSE:MMS). This group of stocks' market caps match MDSO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SAIC,28,356290,4 COLD,27,907693,11 LSI,15,274431,2 MMS,20,288188,-2 Average,22.5,456651,3.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $457 million. That figure was $215 million in MDSO's case. Science Applications International Corp (NYSE:SAIC) is the most popular stock in this table. On the other hand Life Storage, Inc. (NYSE:LSI) is the least popular one with only 15 bullish hedge fund positions. Medidata Solutions Inc (NASDAQ:MDSO) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. A small number of hedge funds were also right about betting on MDSO as the stock returned 24.7% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.