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In this article we will analyze whether Mueller Industries, Inc. (NYSE:MLI) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.
Is MLI a good stock to buy now? The smart money was taking a bullish view. The number of bullish hedge fund positions improved by 2 in recent months. Mueller Industries, Inc. (NYSE:MLI) was in 20 hedge funds' portfolios at the end of September. The all time high for this statistic is 21. Our calculations also showed that MLI 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 18 hedge funds in our database with MLI positions at the end of the second quarter.
Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Roger Ibbotson of Zebra Capital 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. Now we're going to analyze the key hedge fund action surrounding Mueller Industries, Inc. (NYSE:MLI).
Do Hedge Funds Think MLI Is A Good Stock To Buy Now?
At Q3's end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from the previous quarter. By comparison, 19 hedge funds held shares or bullish call options in MLI a year ago. With hedgies' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
The largest stake in Mueller Industries, Inc. (NYSE:MLI) was held by GAMCO Investors, which reported holding $93.2 million worth of stock at the end of September. It was followed by Gates Capital Management with a $49.6 million position. Other investors bullish on the company included Arrowstreet Capital, Royce & Associates, and AQR Capital Management. In terms of the portfolio weights assigned to each position Gates Capital Management allocated the biggest weight to Mueller Industries, Inc. (NYSE:MLI), around 2.16% of its 13F portfolio. AltraVue Capital is also relatively very bullish on the stock, designating 1.54 percent of its 13F equity portfolio to MLI.
Consequently, key hedge funds were breaking ground themselves. Maverick Capital, managed by Lee Ainslie, created the biggest position in Mueller Industries, Inc. (NYSE:MLI). Maverick Capital had $1.2 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $0.8 million position during the quarter. The following funds were also among the new MLI investors: Donald Sussman's Paloma Partners, Paul Tudor Jones's Tudor Investment Corp, and Roger Ibbotson's Zebra Capital Management.
Let's check out hedge fund activity in other stocks similar to Mueller Industries, Inc. (NYSE:MLI). We will take a look at Viela Bio, Inc. (NASDAQ:VIE), Y-mAbs Therapeutics, Inc. (NASDAQ:YMAB), Sapiens International Corporation N.V. (NASDAQ:SPNS), MAG Silver Corporation (NYSE:MAG), Ligand Pharmaceuticals Inc. (NASDAQ:LGND), CorVel Corporation (NASDAQ:CRVL), and GCP Applied Technologies Inc. (NYSE:GCP). All of these stocks' market caps resemble MLI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VIE,5,145172,-3 YMAB,10,113072,-3 SPNS,11,50259,5 MAG,10,228135,0 LGND,22,258838,0 CRVL,12,120490,-3 GCP,21,375404,0 Average,13,184481,-0.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $184 million. That figure was $185 million in MLI's case. Ligand Pharmaceuticals Inc. (NASDAQ:LGND) is the most popular stock in this table. On the other hand Viela Bio, Inc. (NASDAQ:VIE) is the least popular one with only 5 bullish hedge fund positions. Mueller Industries, Inc. (NYSE:MLI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MLI is 79.7. 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. Hedge funds were also right about betting on MLI as the stock returned 27.6% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.