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Is MTG Stock A Buy or Sell?

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We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Melvin Capital's recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards MGIC Investment Corporation (NYSE:MTG).

Is MTG stock a buy? MGIC Investment Corporation (NYSE:MTG) shareholders have witnessed a decrease in support from the world's most elite money managers in recent months. MGIC Investment Corporation (NYSE:MTG) was in 27 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 47. Our calculations also showed that MTG isn't among the 30 most popular stocks among hedge funds (click for Q4 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 124 percentage points since March 2017 (see the details here).

Howard Marks OAKTREE CAPITAL MANAGEMENT
Howard Marks OAKTREE CAPITAL MANAGEMENT

Howard Marks of Oaktree Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. 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 let's check out the key hedge fund action encompassing MGIC Investment Corporation (NYSE:MTG).

Do Hedge Funds Think MTG Is A Good Stock To Buy Now?

Heading into the first quarter of 2021, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -34% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MTG over the last 22 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in MGIC Investment Corporation (NYSE:MTG) was held by King Street Capital, which reported holding $46.8 million worth of stock at the end of December. It was followed by Redwood Capital Management with a $40.6 million position. Other investors bullish on the company included Oaktree Capital Management, Senator Investment Group, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position King Street Capital allocated the biggest weight to MGIC Investment Corporation (NYSE:MTG), around 7.17% of its 13F portfolio. Beach Point Capital Management is also relatively very bullish on the stock, designating 2.56 percent of its 13F equity portfolio to MTG.

Seeing as MGIC Investment Corporation (NYSE:MTG) has faced declining sentiment from the entirety of the hedge funds we track, it's safe to say that there was a specific group of hedge funds that decided to sell off their entire stakes by the end of the fourth quarter. At the top of the heap, Robert Joseph Caruso's Select Equity Group said goodbye to the biggest stake of the "upper crust" of funds monitored by Insider Monkey, totaling close to $30.8 million in stock. Peter Rathjens, Bruce Clarke and John Campbell's fund, Arrowstreet Capital, also said goodbye to its stock, about $21.1 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 14 funds by the end of the fourth quarter.

Let's check out hedge fund activity in other stocks similar to MGIC Investment Corporation (NYSE:MTG). We will take a look at Axis Capital Holdings Limited (NYSE:AXS), Chart Industries, Inc. (NYSE:GTLS), Eagle Materials, Inc. (NYSE:EXP), Endava plc (NYSE:DAVA), Crocs, Inc. (NASDAQ:CROX), TechnipFMC plc (NYSE:FTI), and Neogen Corporation (NASDAQ:NEOG). All of these stocks' market caps are similar to MTG's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AXS,21,571642,-2 GTLS,26,331167,6 EXP,37,377732,6 DAVA,10,162836,-1 CROX,41,620578,6 FTI,35,545147,4 NEOG,16,49316,-2 Average,26.6,379774,2.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.6 hedge funds with bullish positions and the average amount invested in these stocks was $380 million. That figure was $261 million in MTG's case. Crocs, Inc. (NASDAQ:CROX) is the most popular stock in this table. On the other hand Endava plc (NYSE:DAVA) is the least popular one with only 10 bullish hedge fund positions. MGIC Investment Corporation (NYSE:MTG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MTG is 35.7. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and still beat the market by 0.9 percentage points. Hedge funds were also right about betting on MTG as the stock returned 15.5% since the end of Q4 (through 4/19) 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.

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