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Is Monro, Inc. (NASDAQ:MNRO) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Is Monro, Inc. (NASDAQ:MNRO) undervalued? The best stock pickers are taking an optimistic view. The number of long hedge fund bets moved up by 2 recently. Our calculations also showed that MNRO 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.
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
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Paul Marshall of Marshall Wace[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. Let's view the fresh hedge fund action regarding Monro, Inc. (NASDAQ:MNRO).
Hedge fund activity in Monro, Inc. (NASDAQ:MNRO)
At the end of the third quarter, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from the previous quarter. By comparison, 10 hedge funds held shares or bullish call options in MNRO a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Arlington Value Capital was the largest shareholder of Monro, Inc. (NASDAQ:MNRO), with a stake worth $125.3 million reported as of the end of September. Trailing Arlington Value Capital was Marshall Wace, which amassed a stake valued at $29.9 million. D E Shaw, Royce & Associates, and GAMCO Investors 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 Arlington Value Capital allocated the biggest weight to Monro, Inc. (NASDAQ:MNRO), around 8.19% of its 13F portfolio. Marshall Wace is also relatively very bullish on the stock, designating 0.24 percent of its 13F equity portfolio to MNRO.
As industrywide interest jumped, key hedge funds were leading the bulls' herd. Holocene Advisors, managed by Brandon Haley, assembled the most outsized position in Monro, Inc. (NASDAQ:MNRO). Holocene Advisors had $2.1 million invested in the company at the end of the quarter. Paul Tudor Jones's Tudor Investment Corp also initiated a $1.7 million position during the quarter. The following funds were also among the new MNRO investors: Israel Englander's Millennium Management, Mike Vranos's Ellington, and Joel Greenblatt's Gotham Asset Management.
Let's check out hedge fund activity in other stocks similar to Monro, Inc. (NASDAQ:MNRO). We will take a look at Retail Properties of America Inc (NYSE:RPAI), Farfetch Limited (NYSE:FTCH), Crestwood Equity Partners LP (NYSE:CEQP), and First Interstate Bancsystem Inc (NASDAQ:FIBK). All of these stocks' market caps are similar to MNRO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RPAI,21,240383,7 FTCH,22,241175,-2 CEQP,6,7498,2 FIBK,9,62050,-2 Average,14.5,137777,1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $138 million. That figure was $193 million in MNRO's case. Farfetch Limited (NYSE:FTCH) is the most popular stock in this table. On the other hand Crestwood Equity Partners LP (NYSE:CEQP) is the least popular one with only 6 bullish hedge fund positions. Monro, Inc. (NASDAQ:MNRO) 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 MNRO wasn't nearly as popular as these 20 stocks and hedge funds that were betting on MNRO were disappointed as the stock returned -7.1% 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.