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Is Magnolia Oil & Gas Corporation (MGY) Going to Burn These Hedge Funds?

Abigail Fisher

With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the second quarter. One of these stocks was Magnolia Oil & Gas Corporation (NYSE:MGY).

Magnolia Oil & Gas Corporation (NYSE:MGY) was in 17 hedge funds' portfolios at the end of September. MGY investors should be aware of a decrease in support from the world's most elite money managers of late. There were 19 hedge funds in our database with MGY holdings at the end of the previous quarter. Our calculations also showed that MGY isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 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_258176" align="aligncenter" width="450"] Leon Cooperman of Omega Advisors[/caption]

Leon Cooperman Omega Advisors

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. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to take a gander at the key hedge fund action encompassing Magnolia Oil & Gas Corporation (NYSE:MGY).

Hedge fund activity in Magnolia Oil & Gas Corporation (NYSE:MGY)

At the end of the third quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from the previous quarter. On the other hand, there were a total of 37 hedge funds with a bullish position in MGY a year ago. With the smart money's sentiment swirling, there exists an "upper tier" of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

Among these funds, Encompass Capital Advisors held the most valuable stake in Magnolia Oil & Gas Corporation (NYSE:MGY), which was worth $60.8 million at the end of the third quarter. On the second spot was Omega Advisors which amassed $23.6 million worth of shares. Wildcat Capital Management, Millennium Management, 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 Wildcat Capital Management allocated the biggest weight to Magnolia Oil & Gas Corporation (NYSE:MGY), around 4.23% of its 13F portfolio. Encompass Capital Advisors is also relatively very bullish on the stock, setting aside 4.17 percent of its 13F equity portfolio to MGY.

Seeing as Magnolia Oil & Gas Corporation (NYSE:MGY) has faced bearish sentiment from the smart money, we can see that there lies a certain "tier" of funds that decided to sell off their positions entirely last quarter. It's worth mentioning that Anand Parekh's Alyeska Investment Group dropped the largest investment of the 750 funds watched by Insider Monkey, totaling close to $11.4 million in stock, and Todd J. Kantor's Encompass Capital Advisors was right behind this move, as the fund dumped about $2.9 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 2 funds last quarter.

Let's now take a look at hedge fund activity in other stocks similar to Magnolia Oil & Gas Corporation (NYSE:MGY). These stocks are BlackBerry Limited (NYSE:BB), Novanta Inc. (NASDAQ:NOVT), Colliers International Group Inc (NASDAQ:CIGI), and Rexnord Corp (NYSE:RXN). All of these stocks' market caps resemble MGY's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BB,28,401792,3 NOVT,9,46032,-4 CIGI,11,714194,1 RXN,19,213644,-1 Average,16.75,343916,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $344 million. That figure was $133 million in MGY's case. BlackBerry Limited (NYSE:BB) is the most popular stock in this table. On the other hand Novanta Inc. (NASDAQ:NOVT) is the least popular one with only 9 bullish hedge fund positions. Magnolia Oil & Gas Corporation (NYSE:MGY) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately MGY wasn't nearly as popular as these 20 stocks and hedge funds that were betting on MGY were disappointed as the stock returned -2.2% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.

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

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