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Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 817 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about MRC Global Inc (NYSE:MRC).
Is MRC a good stock to buy now? MRC Global Inc (NYSE:MRC) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 18 hedge funds' portfolios at the end of September. Our calculations also showed that MRC 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). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as MEI Pharma Inc (NASDAQ:MEIP), AC Immune SA (NASDAQ:ACIU), and MBIA Inc. (NYSE:MBI) to gather more data points.
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Minhua Zhang of Weld 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. Keeping this in mind we're going to view the key hedge fund action surrounding MRC Global Inc (NYSE:MRC).
Do Hedge Funds Think MRC Is A Good Stock To Buy Now?
At Q3's end, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MRC over the last 21 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
Among these funds, D E Shaw held the most valuable stake in MRC Global Inc (NYSE:MRC), which was worth $8.6 million at the end of the third quarter. On the second spot was Impax Asset Management which amassed $4.3 million worth of shares. Arrowstreet Capital, Millennium Management, 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 Harvey Partners allocated the biggest weight to MRC Global Inc (NYSE:MRC), around 0.61% of its 13F portfolio. Intrinsic Edge Capital is also relatively very bullish on the stock, setting aside 0.12 percent of its 13F equity portfolio to MRC.
Judging by the fact that MRC Global Inc (NYSE:MRC) has witnessed declining sentiment from the entirety of the hedge funds we track, logic holds that there was a specific group of fund managers that elected to cut their entire stakes last quarter. It's worth mentioning that Paul Tudor Jones's Tudor Investment Corp cut the biggest stake of the "upper crust" of funds watched by Insider Monkey, valued at about $0.6 million in stock. Cliff Asness's fund, AQR Capital Management, also dumped its stock, about $0.1 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as MRC Global Inc (NYSE:MRC) but similarly valued. We will take a look at MEI Pharma Inc (NASDAQ:MEIP), AC Immune SA (NASDAQ:ACIU), MBIA Inc. (NYSE:MBI), Oceaneering International (NYSE:OII), Miller Industries, Inc. (NYSE:MLR), Merus N.V. (NASDAQ:MRUS), and Franks International NV (NYSE:FI). All of these stocks' market caps are similar to MRC's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MEIP,16,59453,-4 ACIU,11,61021,1 MBI,16,65059,0 OII,18,30144,1 MLR,11,55092,1 MRUS,13,120093,-2 FI,9,5350,0 Average,13.4,56602,-0.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.4 hedge funds with bullish positions and the average amount invested in these stocks was $57 million. That figure was $27 million in MRC's case. Oceaneering International (NYSE:OII) is the most popular stock in this table. On the other hand Franks International NV (NYSE:FI) is the least popular one with only 9 bullish hedge fund positions. MRC Global Inc (NYSE:MRC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MRC is 76.6. 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 MRC as the stock returned 51.9% 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.