Was The Smart Money Right About Madrigal Pharmaceuticals (MDGL)?
Hedge funds don't get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don't realize is that 100% of the passive funds didn't see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March.
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of December. At Insider Monkey, we follow nearly 835 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL) was in 19 hedge funds' portfolios at the end of the fourth quarter of 2019. MDGL has experienced an increase in enthusiasm from smart money lately. There were 13 hedge funds in our database with MDGL holdings at the end of the previous quarter. Our calculations also showed that MDGL isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
[caption id="attachment_673253" align="aligncenter" width="400"]
Jeffrey Talpins of Element Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with 77% accuracy, so we check out his stock picks. A former hedge fund manager is pitching the "next Amazon" in this video; again we are listening. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we're going to review the key hedge fund action encompassing Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL).
What have hedge funds been doing with Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL)?
At the end of the fourth quarter, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of 46% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MDGL over the last 18 quarters. With the smart money's capital changing hands, there exists an "upper tier" of notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
The largest stake in Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL) was held by Baker Bros. Advisors, which reported holding $106.5 million worth of stock at the end of September. It was followed by Healthcor Management LP with a $99.2 million position. Other investors bullish on the company included venBio Select Advisor, Rock Springs Capital Management, and Armistice Capital. In terms of the portfolio weights assigned to each position Healthcor Management LP allocated the biggest weight to Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL), around 3.54% of its 13F portfolio. Element Capital Management is also relatively very bullish on the stock, setting aside 1.08 percent of its 13F equity portfolio to MDGL.
Consequently, some big names were leading the bulls' herd. Luminus Management, managed by Jonathan Barrett and Paul Segal, created the biggest position in Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL). Luminus Management had $11.2 million invested in the company at the end of the quarter. David Costen Haley's HBK Investments also made a $6.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Jeffrey Talpins's Element Capital Management, Neil Shahrestani's Ikarian Capital, and Phill Gross and Robert Atchinson's Adage Capital Management.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL) but similarly valued. We will take a look at NexTier Oilfield Solutions Inc. (NYSE:NEX), Armada Hoffler Properties Inc (NYSE:AHH), Monmouth R.E. Inv. Corp. (NYSE:MNR), and Dine Brands Global, Inc. (NYSE:DIN). This group of stocks' market values resemble MDGL's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NEX,29,563682,6 AHH,6,81469,-9 MNR,14,77143,3 DIN,20,177876,3 Average,17.25,225043,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.25 hedge funds with bullish positions and the average amount invested in these stocks was $225 million. That figure was $329 million in MDGL's case. NexTier Oilfield Solutions Inc. (NYSE:NEX) is the most popular stock in this table. On the other hand Armada Hoffler Properties Inc (NYSE:AHH) is the least popular one with only 6 bullish hedge fund positions. Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but still beat the market by 12.9 percentage points. Hedge funds were also right about betting on MDGL, though not to the same extent, as the stock returned -9.5% during the first four months of 2020 (through May 1st) and outperformed the market as well.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
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