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Is Microchip Technology Incorporated (MCHP) A Good Stock To Buy?

Abigail Fisher

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Microchip Technology Incorporated (NASDAQ:MCHP).

Microchip Technology Incorporated (NASDAQ:MCHP) investors should pay attention to an increase in support from the world's most elite money managers lately. Our calculations also showed that MCHP 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 many gauges investors use to evaluate stocks. A duo of the best gauges are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the top picks of the best investment managers can outclass their index-focused peers by a healthy amount (see the details here).

[caption id="attachment_339612" align="aligncenter" width="450"] Kerr Neilson of Platinum Asset Management[/caption]

Kerr Neilson of Platinum Asset Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to view the recent hedge fund action surrounding Microchip Technology Incorporated (NASDAQ:MCHP).

How are hedge funds trading Microchip Technology Incorporated (NASDAQ:MCHP)?

At the end of the third quarter, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 12% from one quarter earlier. On the other hand, there were a total of 23 hedge funds with a bullish position in MCHP a year ago. With hedge funds' sentiment swirling, there exists a few key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

MCHP_dec2019

The largest stake in Microchip Technology Incorporated (NASDAQ:MCHP) was held by Lyrical Asset Management, which reported holding $365.5 million worth of stock at the end of September. It was followed by Platinum Asset Management with a $191.6 million position. Other investors bullish on the company included Citadel Investment Group, Point72 Asset Management, and Partner Fund Management. In terms of the portfolio weights assigned to each position Tegean Capital Management allocated the biggest weight to Microchip Technology Incorporated (NASDAQ:MCHP), around 8.84% of its portfolio. Lyrical Asset Management is also relatively very bullish on the stock, setting aside 5.5 percent of its 13F equity portfolio to MCHP.

As aggregate interest increased, key hedge funds were breaking ground themselves. Maplelane Capital, managed by Leon Shaulov, initiated the largest call position in Microchip Technology Incorporated (NASDAQ:MCHP). Maplelane Capital had $50.2 million invested in the company at the end of the quarter. Anand Parekh's Alyeska Investment Group also initiated a $47.9 million position during the quarter. The following funds were also among the new MCHP investors: Leon Shaulov's Maplelane Capital, Noam Gottesman's GLG Partners, and Lee Ainslie's Maverick Capital.

Let's go over hedge fund activity in other stocks similar to Microchip Technology Incorporated (NASDAQ:MCHP). These stocks are State Street Corporation (NYSE:STT), Cheniere Energy Partners LP (NYSE:CQP), Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), and Kellogg Company (NYSE:K). This group of stocks' market caps are similar to MCHP's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position STT,33,1207053,-3 CQP,5,11230,-2 ALXN,46,2582286,2 K,27,629331,-1 Average,27.75,1107475,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.75 hedge funds with bullish positions and the average amount invested in these stocks was $1107 million. That figure was $1168 million in MCHP's case. Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) is the most popular stock in this table. On the other hand Cheniere Energy Partners LP (NYSE:CQP) is the least popular one with only 5 bullish hedge fund positions. Microchip Technology Incorporated (NASDAQ:MCHP) 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 MCHP wasn't nearly as popular as these 20 stocks and hedge funds that were betting on MCHP 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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