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Were These Hedge Funds Right About Buying Motorola Solutions Inc (MSI)?

Reymerlyn Martin
·6 min read

In this article you are going to find out whether hedge funds think Motorola Solutions Inc (NYSE:MSI) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Motorola Solutions Inc (NYSE:MSI) undervalued? The best stock pickers were in a bullish mood. The number of bullish hedge fund bets moved up by 2 in recent months. Motorola Solutions Inc (NYSE:MSI) was in 36 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 41. Our calculations also showed that MSI isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). 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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 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.

Phill Gross Adage Capital Phillip Gross
Phill Gross Adage Capital Phillip Gross

Phillip Gross of Adage Capital

At Insider Monkey we scour multiple sources to uncover 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 most profitable companies in the world 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 to get excerpts of these letters in your inbox. With all of this in mind we're going to check out the fresh hedge fund action regarding Motorola Solutions Inc (NYSE:MSI).

How are hedge funds trading Motorola Solutions Inc (NYSE:MSI)?

At Q2's end, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in MSI over the last 20 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.

Is MSI A Good Stock To Buy?
Is MSI A Good Stock To Buy?

Of the funds tracked by Insider Monkey, D E Shaw, managed by D. E. Shaw, holds the largest position in Motorola Solutions Inc (NYSE:MSI). D E Shaw has a $113.4 million position in the stock, comprising 0.1% of its 13F portfolio. On D E Shaw's heels is William B. Gray of Orbis Investment Management, with a $86.9 million position; 0.7% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors that hold long positions contain John Overdeck and David Siegel's Two Sigma Advisors, Phill Gross and Robert Atchinson's Adage Capital Management and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital. In terms of the portfolio weights assigned to each position MIG Capital allocated the biggest weight to Motorola Solutions Inc (NYSE:MSI), around 2.52% of its 13F portfolio. Oribel Capital Management is also relatively very bullish on the stock, designating 0.89 percent of its 13F equity portfolio to MSI.

With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Orbis Investment Management, managed by William B. Gray, established the most outsized position in Motorola Solutions Inc (NYSE:MSI). Orbis Investment Management had $86.9 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also initiated a $40 million position during the quarter. The other funds with brand new MSI positions are Brandon Haley's Holocene Advisors, Mikal Patel's Oribel Capital Management, and Richard SchimeláandáLawrence Sapanski's Cinctive Capital Management.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Motorola Solutions Inc (NYSE:MSI) but similarly valued. We will take a look at V.F. Corporation (NYSE:VFC), Parker-Hannifin Corporation (NYSE:PH), Twitter Inc (NYSE:TWTR), Marvell Technology Group Ltd. (NASDAQ:MRVL), American Water Works Company, Inc. (NYSE:AWK), XP Inc. (NASDAQ:XP), and Williams Companies, Inc. (NYSE:WMB). All of these stocks' market caps are similar to MSI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VFC,27,558958,8 PH,39,1172205,7 TWTR,68,1278023,13 MRVL,41,664690,12 AWK,30,653000,0 XP,21,430821,8 WMB,41,466723,-6 Average,38.1,746346,6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.1 hedge funds with bullish positions and the average amount invested in these stocks was $746 million. That figure was $536 million in MSI's case. Twitter Inc (NYSE:TWTR) is the most popular stock in this table. On the other hand XP Inc. (NASDAQ:XP) is the least popular one with only 21 bullish hedge fund positions. Motorola Solutions Inc (NYSE:MSI) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MSI is 49.3. 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 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. A small number of hedge funds were also right about betting on MSI as the stock returned 13.3% since the end of the second quarter (through 10/30) and outperformed the market by an even larger margin.

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

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