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Is MCY A Good Stock To Buy Now According To Hedge Funds?

Reymerlyn Martin
·6 min read

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 have processed the filings of the more than 817 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their September 30 holdings, data that is available nowhere else. Should you consider Mercury General Corporation (NYSE:MCY) for your portfolio? We'll look to this invaluable collective wisdom for the answer.

Is MCY a good stock to buy now? Mercury General Corporation (NYSE:MCY) investors should be aware of an increase in hedge fund sentiment lately. Mercury General Corporation (NYSE:MCY) was in 21 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 22. Our calculations also showed that MCY isn't among the 30 most popular stocks among hedge funds (click for Q3 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 66 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.

Donald Sussman Paloma Partners
Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let's take a peek at the key hedge fund action encompassing Mercury General Corporation (NYSE:MCY).

Do Hedge Funds Think MCY Is A Good Stock To Buy Now?

At the end of September, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of 24% from the second quarter of 2020. On the other hand, there were a total of 21 hedge funds with a bullish position in MCY 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.

When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, founded by Jim Simons, holds the biggest position in Mercury General Corporation (NYSE:MCY). Renaissance Technologies has a $90.2 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is Prospector Partners, managed by John D. Gillespie, which holds a $11.4 million position; 1.7% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors with similar optimism encompass Cliff Asness's AQR Capital Management, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital and Scott Wallace's Wallace Capital Management. In terms of the portfolio weights assigned to each position Prospector Partners allocated the biggest weight to Mercury General Corporation (NYSE:MCY), around 1.72% of its 13F portfolio. Wallace Capital Management is also relatively very bullish on the stock, setting aside 1.23 percent of its 13F equity portfolio to MCY.

As aggregate interest increased, some big names have jumped into Mercury General Corporation (NYSE:MCY) headfirst. Wallace Capital Management, managed by Scott Wallace, created the biggest position in Mercury General Corporation (NYSE:MCY). Wallace Capital Management had $7 million invested in the company at the end of the quarter. Donald Sussman's Paloma Partners also initiated a $1 million position during the quarter. The other funds with new positions in the stock are Gregg Moskowitz's Interval Partners, Qing Li's Sciencast Management, and Steve Cohen's Point72 Asset Management.

Let's now take a look at hedge fund activity in other stocks similar to Mercury General Corporation (NYSE:MCY). These stocks are TreeHouse Foods Inc. (NYSE:THS), Focus Financial Partners Inc. (NASDAQ:FOCS), Apellis Pharmaceuticals, Inc. (NASDAQ:APLS), International Game Technology PLC (NYSE:IGT), MACOM Technology Solutions Holdings Inc (NASDAQ:MTSI), Ryder System, Inc. (NYSE:R), and CNO Financial Group Inc (NYSE:CNO). All of these stocks' market caps match MCY's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position THS,30,189124,-2 FOCS,11,60571,2 APLS,29,515294,0 IGT,28,139844,5 MTSI,28,215078,5 R,19,232990,-1 CNO,19,293710,1 Average,23.4,235230,1.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.4 hedge funds with bullish positions and the average amount invested in these stocks was $235 million. That figure was $152 million in MCY's case. TreeHouse Foods Inc. (NYSE:THS) is the most popular stock in this table. On the other hand Focus Financial Partners Inc. (NASDAQ:FOCS) is the least popular one with only 11 bullish hedge fund positions. Mercury General Corporation (NYSE:MCY) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MCY is 64. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on MCY as the stock returned 22% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.

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

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