We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let's take a look at whether Medallia, Inc. (NYSE:MDLA) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Is Medallia, Inc. (NYSE:MDLA) ready to rally soon? Money managers are becoming less confident. The number of long hedge fund bets were trimmed by 1 recently. Our calculations also showed that MDLA isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). MDLA was in 22 hedge funds' portfolios at the end of December. There were 23 hedge funds in our database with MDLA positions at the end of the previous quarter.
To most traders, hedge funds are assumed to be underperforming, old investment tools of yesteryear. While there are more than 8000 funds in operation at present, Our researchers hone in on the leaders of this club, around 850 funds. It is estimated that this group of investors watch over bulk of the hedge fund industry's total capital, and by monitoring their top stock picks, Insider Monkey has spotted various investment strategies that have historically defeated Mr. Market. Insider Monkey's flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
[caption id="attachment_30602" align="aligncenter" width="399"] Philippe Laffont of Coatue Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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. Keeping this in mind let's view the new hedge fund action surrounding Medallia, Inc. (NYSE:MDLA).
How are hedge funds trading Medallia, Inc. (NYSE:MDLA)?
Heading into the first quarter of 2020, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MDLA over the last 18 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
Among these funds, SCGE Management held the most valuable stake in Medallia, Inc. (NYSE:MDLA), which was worth $127.5 million at the end of the third quarter. On the second spot was RGM Capital which amassed $85 million worth of shares. Polar Capital, Lone Pine Capital, and Intrinsic Edge Capital 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 SCGE Management allocated the biggest weight to Medallia, Inc. (NYSE:MDLA), around 5.15% of its 13F portfolio. RGM Capital is also relatively very bullish on the stock, setting aside 4.86 percent of its 13F equity portfolio to MDLA.
Since Medallia, Inc. (NYSE:MDLA) has experienced bearish sentiment from hedge fund managers, we can see that there lies a certain "tier" of fund managers that decided to sell off their full holdings heading into Q4. At the top of the heap, Ken Griffin's Citadel Investment Group dumped the biggest stake of the "upper crust" of funds tracked by Insider Monkey, totaling about $12.4 million in stock. Nehal Chopra's fund, Ratan Capital Group, also dumped its stock, about $7.3 million worth. These moves are important to note, as total hedge fund interest dropped by 1 funds heading into Q4.
Let's go over hedge fund activity in other stocks similar to Medallia, Inc. (NYSE:MDLA). These stocks are Gates Industrial Corporation plc (NYSE:GTES), Two Harbors Investment Corp (NYSE:TWO), Clearway Energy, Inc. (NYSE:CWEN), and Cinemark Holdings, Inc. (NYSE:CNK). All of these stocks' market caps are similar to MDLA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GTES,9,61213,-6 TWO,20,109765,4 CWEN,23,233438,2 CNK,22,219355,-1 Average,18.5,155943,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $156 million. That figure was $301 million in MDLA's case. Clearway Energy, Inc. (NYSE:CWEN) is the most popular stock in this table. On the other hand Gates Industrial Corporation plc (NYSE:GTES) is the least popular one with only 9 bullish hedge fund positions. Medallia, Inc. (NYSE:MDLA) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately MDLA wasn't nearly as popular as these 20 stocks and hedge funds that were betting on MDLA were disappointed as the stock returned -24.9% during the same time period 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. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.