U.S. Markets close in 1 hr 15 mins

Magic Software Enterprises Ltd. (MGIC): Are Hedge Funds Right About This Stock?

Debasis Saha

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of Magic Software Enterprises Ltd. (NASDAQ:MGIC).

Magic Software Enterprises Ltd. (NASDAQ:MGIC) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 3 hedge funds' portfolios at the end of March. 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 Agenus Inc (NASDAQ:AGEN), Despegar.com, Corp. (NYSE:DESP), and First Mid-Illinois Bancshares, Inc. (NASDAQ:FMBH) to gather more data points. Our calculations also showed that MGIC 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 today’s marketplace there are a lot of signals stock market investors employ to grade stocks. A duo of the less utilized signals are hedge fund and insider trading sentiment. Our researchers have shown that, historically, those who follow the best picks of the elite fund managers can outclass the S&P 500 by a solid margin (see the details here).

[caption id="attachment_221556" align="aligncenter" width="400"] Richard Driehaus of Driehaus Capital[/caption]

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, legendary investor Bill Miller told investors to sell 7 extremely popular recession stocks last month. So, we went through his list and recommended another stock with 100% upside potential instead. We interview hedge fund managers and ask them about their best ideas. You can watch our latest hedge fund manager interview here and find out the name of the large-cap healthcare stock that Sio Capital's Michael Castor expects to double. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we're going to go over the latest hedge fund action encompassing Magic Software Enterprises Ltd. (NASDAQ:MGIC).

How are hedge funds trading Magic Software Enterprises Ltd. (NASDAQ:MGIC)?

At Q1's end, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. By comparison, 2 hedge funds held shares or bullish call options in MGIC 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.

Is MGIC A Good Stock To Buy?

According to Insider Monkey's hedge fund database, Renaissance Technologies, holds the most valuable position in Magic Software Enterprises Ltd. (NASDAQ:MGIC). Renaissance Technologies has a $4.4 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Driehaus Capital, led by Richard Driehaus, holding a $0.2 million position; less than 0.1%% of its 13F portfolio is allocated to the company. In terms of the portfolio weights assigned to each position Driehaus Capital allocated the biggest weight to Magic Software Enterprises Ltd. (NASDAQ:MGIC), around 0.01% of its 13F portfolio. Renaissance Technologies is also relatively very bullish on the stock, setting aside 0.0043 percent of its 13F equity portfolio to MGIC.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Citadel Investment Group. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Marshall Wace LLP).

Let's also examine hedge fund activity in other stocks similar to Magic Software Enterprises Ltd. (NASDAQ:MGIC). These stocks are Agenus Inc (NASDAQ:AGEN), Despegar.com, Corp. (NYSE:DESP), First Mid-Illinois Bancshares, Inc. (NASDAQ:FMBH), and AngioDynamics, Inc. (NASDAQ:ANGO). This group of stocks' market caps resemble MGIC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AGEN,11,45308,0 DESP,16,84039,5 FMBH,5,7113,-1 ANGO,11,22577,-2 Average,10.75,39759,0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $40 million. That figure was $5 million in MGIC's case. Despegar.com, Corp. (NYSE:DESP) is the most popular stock in this table. On the other hand First Mid-Illinois Bancshares, Inc. (NASDAQ:FMBH) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Magic Software Enterprises Ltd. (NASDAQ:MGIC) is even less popular than FMBH. Hedge funds clearly dropped the ball on MGIC as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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 7.9% in 2020 through May 22nd and still beat the market by 15.6 percentage points. A small number of hedge funds were also right about betting on MGIC as the stock returned 26.2% so far in the second quarter and outperformed the market by an even larger margin.

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

Related Content