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Was The Smart Money Right About Martin Marietta Materials (MLM)?

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·6 min read
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In this article we are going to use hedge fund sentiment as a tool and determine whether Martin Marietta Materials, Inc. (NYSE:MLM) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Martin Marietta Materials, Inc. (NYSE:MLM) has experienced an increase in enthusiasm from smart money lately. Martin Marietta Materials, Inc. (NYSE:MLM) was in 41 hedge funds' portfolios at the end of December. The all time high for this statistic is 52. Our calculations also showed that MLM isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

John Armitage Egerton Capital
John Armitage Egerton Capital

John Armitage of Egerton Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell 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. Now let's take a look at the key hedge fund action surrounding Martin Marietta Materials, Inc. (NYSE:MLM).

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

At Q4's end, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the third quarter of 2020. Below, you can check out the change in hedge fund sentiment towards MLM over the last 22 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is MLM A Good Stock To Buy?
Is MLM A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Robert Joseph Caruso's Select Equity Group has the most valuable position in Martin Marietta Materials, Inc. (NYSE:MLM), worth close to $1.0016 billion, amounting to 4.1% of its total 13F portfolio. The second largest stake is held by Gardner Russo & Gardner, managed by Tom Russo, which holds a $396.4 million position; 3.6% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors with similar optimism contain John Armitage's Egerton Capital Limited, Seth Rosen's Nitorum Capital and Panayotis Takis Sparaggis's Alkeon Capital Management. In terms of the portfolio weights assigned to each position Select Equity Group allocated the biggest weight to Martin Marietta Materials, Inc. (NYSE:MLM), around 4.11% of its 13F portfolio. Nitorum Capital is also relatively very bullish on the stock, setting aside 4.03 percent of its 13F equity portfolio to MLM.

Now, key hedge funds have been driving this bullishness. Intrinsic Edge Capital, managed by Mark Coe, created the biggest position in Martin Marietta Materials, Inc. (NYSE:MLM). Intrinsic Edge Capital had $9.1 million invested in the company at the end of the quarter. Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors also initiated a $6.2 million position during the quarter. The other funds with new positions in the stock are Michael Gelband's ExodusPoint Capital, Eduardo Abush's Waterfront Capital Partners, and Benjamin A. Smith's Laurion Capital Management.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Martin Marietta Materials, Inc. (NYSE:MLM) but similarly valued. These stocks are NovoCure Limited (NASDAQ:NVCR), Tyler Technologies, Inc. (NYSE:TYL), Hartford Financial Services Group Inc (NYSE:HIG), NICE Ltd (NASDAQ:NICE), GDS Holdings Limited (NASDAQ:GDS), Ubiquiti Inc. (NYSE:UI), and CMS Energy Corporation (NYSE:CMS). This group of stocks' market valuations match MLM's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NVCR,22,417787,0 TYL,32,592915,1 HIG,36,1559898,0 NICE,26,726097,0 GDS,39,2874120,-8 UI,19,319456,-1 CMS,24,580991,-5 Average,28.3,1010181,-1.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.3 hedge funds with bullish positions and the average amount invested in these stocks was $1010 million. That figure was $2011 million in MLM's case. GDS Holdings Limited (NASDAQ:GDS) is the most popular stock in this table. On the other hand Ubiquiti Inc. (NYSE:UI) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Martin Marietta Materials, Inc. (NYSE:MLM) is more popular among hedge funds. Our overall hedge fund sentiment score for MLM is 81.7. 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 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks returned 13.6% in 2021 through April 30th but still managed to beat the market by 1.6 percentage points. Hedge funds were also right about betting on MLM as the stock returned 24.6% since the end of December (through 4/30) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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Disclosure: None. This article was originally published at Insider Monkey.

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