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

Abigail Fisher
·6 min read

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Magellan Health Inc (NASDAQ:MGLN).

Is MGLN a good stock to buy now? Prominent investors were in a bearish mood. The number of long hedge fund positions decreased by 2 recently. Magellan Health Inc (NASDAQ:MGLN) was in 21 hedge funds' portfolios at the end of September. The all time high for this statistic is 23. Our calculations also showed that MGLN 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). There were 23 hedge funds in our database with MGLN holdings at the end of June. Video: Watch our video about the top 5 most popular hedge fund stocks.

According to most shareholders, hedge funds are viewed as slow, outdated investment vehicles of years past. While there are over 8000 funds with their doors open at the moment, We choose to focus on the moguls of this club, about 850 funds. These investment experts administer the majority of all hedge funds' total asset base, and by keeping an eye on their unrivaled investments, Insider Monkey has deciphered a number of investment strategies that have historically surpassed the S&P 500 index. Insider Monkey's flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .

David Brown Hawk Ridge Partners
David Brown Hawk Ridge Partners

David Brown of Hawk Ridge Management

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. With all of this in mind let's take a peek at the latest hedge fund action surrounding Magellan Health Inc (NASDAQ:MGLN).

Do Hedge Funds Think MGLN 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 -9% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MGLN over the last 21 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Starboard Value LP held the most valuable stake in Magellan Health Inc (NASDAQ:MGLN), which was worth $179.5 million at the end of the third quarter. On the second spot was Point72 Asset Management which amassed $69.2 million worth of shares. Renaissance Technologies, Hawk Ridge Management, and Moab Capital 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 Moab Capital Partners allocated the biggest weight to Magellan Health Inc (NASDAQ:MGLN), around 22.63% of its 13F portfolio. Starboard Value LP is also relatively very bullish on the stock, setting aside 5.33 percent of its 13F equity portfolio to MGLN.

Due to the fact that Magellan Health Inc (NASDAQ:MGLN) has faced bearish sentiment from hedge fund managers, it's safe to say that there lies a certain "tier" of money managers who were dropping their entire stakes by the end of the third quarter. It's worth mentioning that Jonathan Soros's JS Capital dropped the biggest stake of all the hedgies watched by Insider Monkey, totaling close to $0.5 million in stock, and Alec Litowitz and Ross Laser's Magnetar Capital was right behind this move, as the fund sold off about $0.4 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds by the end of the third quarter.

Let's now review hedge fund activity in other stocks similar to Magellan Health Inc (NASDAQ:MGLN). These stocks are Essential Properties Realty Trust, Inc. (NYSE:EPRT), Industrias Bachoco, S.A.B. de C.V. (NYSE:IBA), Accolade, Inc. (NASDAQ:ACCD), Independent Bank Group Inc (NASDAQ:IBTX), Badger Meter, Inc. (NYSE:BMI), Chimera Investment Corporation (NYSE:CIM), and Pacific Premier Bancorp, Inc. (NASDAQ:PPBI). All of these stocks' market caps are closest to MGLN's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EPRT,12,79272,-1 IBA,3,32383,0 ACCD,11,65314,11 IBTX,9,72830,0 BMI,18,165104,-2 CIM,20,80525,3 PPBI,8,62494,-3 Average,11.6,79703,1.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.6 hedge funds with bullish positions and the average amount invested in these stocks was $80 million. That figure was $450 million in MGLN's case. Chimera Investment Corporation (NYSE:CIM) is the most popular stock in this table. On the other hand Industrias Bachoco, S.A.B. de C.V. (NYSE:IBA) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks Magellan Health Inc (NASDAQ:MGLN) is more popular among hedge funds. Our overall hedge fund sentiment score for MGLN is 80.4. 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. Unfortunately MGLN wasn't nearly as popular as these 20 stocks and hedge funds that were betting on MGLN were disappointed as the stock returned 5.7% since the end of the third quarter (through 12/14) 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 most of these stocks already outperformed the market in 2020.

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

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