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Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards MSC Industrial Direct Co Inc (NYSE:MSM).
MSC Industrial Direct Co Inc (NYSE:MSM) investors should be aware of an increase in support from the world's most elite money managers lately. MSC Industrial Direct Co Inc (NYSE:MSM) was in 20 hedge funds' portfolios at the end of March. The all time high for this statistic is 30. Our calculations also showed that MSM isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).
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 S&P 500 ETFs by 115 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.
Gavin Saitowitz of Prelude Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind let's check out the fresh hedge fund action surrounding MSC Industrial Direct Co Inc (NYSE:MSM).
Do Hedge Funds Think MSM Is A Good Stock To Buy Now?
At the end of March, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from one quarter earlier. On the other hand, there were a total of 23 hedge funds with a bullish position in MSM 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.
Among these funds, Yacktman Asset Management held the most valuable stake in MSC Industrial Direct Co Inc (NYSE:MSM), which was worth $116 million at the end of the fourth quarter. On the second spot was Paradice Investment Management which amassed $78.4 million worth of shares. Royce & Associates, AQR Capital Management, and Nitorum 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 Paradice Investment Management allocated the biggest weight to MSC Industrial Direct Co Inc (NYSE:MSM), around 3.77% of its 13F portfolio. Value Holdings LP is also relatively very bullish on the stock, dishing out 2.03 percent of its 13F equity portfolio to MSM.
Consequently, key hedge funds were leading the bulls' herd. Nitorum Capital, managed by Seth Rosen, established the most valuable position in MSC Industrial Direct Co Inc (NYSE:MSM). Nitorum Capital had $32.9 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also made a $4.6 million investment in the stock during the quarter. The following funds were also among the new MSM investors: Gavin Saitowitz and Cisco J. del Valle's Prelude Capital (previously Springbok Capital), Alec Litowitz and Ross Laser's Magnetar Capital, and Matthew Hulsizer's PEAK6 Capital Management.
Let's also examine hedge fund activity in other stocks similar to MSC Industrial Direct Co Inc (NYSE:MSM). We will take a look at Macy's, Inc. (NYSE:M), Grand Canyon Education Inc (NASDAQ:LOPE), Petco Health and Wellness Company, Inc. (NASDAQ:WOOF), Companhia de Saneamento Básico do Estado de São Paulo - SABESP (NYSE:SBS), Grupo Televisa SAB (NYSE:TV), Beam Therapeutics Inc. (NASDAQ:BEAM), and Webster Financial Corporation (NYSE:WBS). This group of stocks' market valuations are similar to MSM's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position M,31,790325,-3 LOPE,24,195853,-2 WOOF,25,201907,25 SBS,10,265538,-2 TV,15,752577,-5 BEAM,18,956334,4 WBS,27,431270,1 Average,21.4,513401,2.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.4 hedge funds with bullish positions and the average amount invested in these stocks was $513 million. That figure was $394 million in MSM's case. Macy's, Inc. (NYSE:M) is the most popular stock in this table. On the other hand Companhia de Saneamento Básico do Estado de São Paulo - SABESP (NYSE:SBS) is the least popular one with only 10 bullish hedge fund positions. MSC Industrial Direct Co Inc (NYSE:MSM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MSM is 50.8. 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. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and surpassed the market again by 7.7 percentage points. Unfortunately MSM wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); MSM investors were disappointed as the stock returned -1.8% since the end of March (through 7/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.
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Disclosure: None. This article was originally published at Insider Monkey.