U.S. Markets open in 28 mins

Is Magal Security Systems Ltd. (MAGS) Going to Burn These Hedge Funds?

Nina Todic

The market has been volatile in the last few months as the Federal Reserve finalized its rate cuts and uncertainty looms over trade negotiations with China. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 10 percentage points over the last 12 months. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure since summer months, though some funds increased their exposure dramatically at the end of Q3 and the beginning of Q4. In this article, we analyze what the smart money thinks of Magal Security Systems Ltd. (NASDAQ:MAGS) and find out how it is affected by hedge funds' moves.

Hedge fund interest in Magal Security Systems Ltd. (NASDAQ:MAGS) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Horizon Global Corporation (NYSE:HZN), Lakeland Industries, Inc. (NASDAQ:LAKE), and CPI Aerostructures, Inc. (NYSE:CVU) to gather more data points. Our calculations also showed that MAGS isn't among the 30 most popular stocks among hedge funds.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_699750" align="aligncenter" width="473"] Gifford Combs of Dalton Investments[/caption]

Gifford Combs - Dalton Investments

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 take a gander at the recent hedge fund action regarding Magal Security Systems Ltd. (NASDAQ:MAGS).

How have hedgies been trading Magal Security Systems Ltd. (NASDAQ:MAGS)?

At Q3's end, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 2 hedge funds with a bullish position in MAGS 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.

No of Hedge Funds with MAGS Positions

More specifically, Renaissance Technologies was the largest shareholder of Magal Security Systems Ltd. (NASDAQ:MAGS), with a stake worth $2.3 million reported as of the end of September. Trailing Renaissance Technologies was Prescott Group Capital Management, which amassed a stake valued at $0.2 million. Dalton Investments was 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 Dalton Investments allocated the biggest weight to Magal Security Systems Ltd. (NASDAQ:MAGS), around 0.08% of its portfolio. Prescott Group Capital Management is also relatively very bullish on the stock, earmarking 0.07 percent of its 13F equity portfolio to MAGS.

Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.

Let's now take a look at hedge fund activity in other stocks similar to Magal Security Systems Ltd. (NASDAQ:MAGS). We will take a look at Horizon Global Corporation (NYSE:HZN), Lakeland Industries, Inc. (NASDAQ:LAKE), CPI Aerostructures, Inc. (NYSE:CVU), and Aqua Metals, Inc. (NASDAQ:AQMS). This group of stocks' market values are closest to MAGS's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HZN,4,9074,1 LAKE,4,27103,0 CVU,5,10430,0 AQMS,5,687,0 Average,4.5,11824,0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 4.5 hedge funds with bullish positions and the average amount invested in these stocks was $12 million. That figure was $3 million in MAGS's case. CPI Aerostructures, Inc. (NYSE:CVU) is the most popular stock in this table. On the other hand Horizon Global Corporation (NYSE:HZN) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Magal Security Systems Ltd. (NASDAQ:MAGS) is even less popular than HZN. Hedge funds dodged a bullet by taking a bearish stance towards MAGS. Our calculations showed that the top 20 most popular hedge fund stocks returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately MAGS wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); MAGS investors were disappointed as the stock returned 1.9% during the fourth quarter (through 11/22) 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 so far in Q4.

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

Related Content