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Were Hedge Funds Right About Embracing Martin Marietta Materials, Inc. (MLM)?

Asma UL Husna
·6 min read

At the end of February we announced the arrival of the first US recession since 2009 and we predicted 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 Martin Marietta Materials, Inc. (NYSE:MLM).

Martin Marietta Materials, Inc. (NYSE:MLM) was in 51 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 52. MLM investors should pay attention to an increase in activity from the world's largest hedge funds recently. There were 44 hedge funds in our database with MLM holdings at the end of March. Our calculations also showed that MLM 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.

CHILTON INVESTMENT COMPANY
CHILTON INVESTMENT COMPANY

Richard Chilton of Chilton Investment Company

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar 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. Keeping this in mind we're going to take a peek at the new hedge fund action regarding Martin Marietta Materials, Inc. (NYSE:MLM).

What have hedge funds been doing with Martin Marietta Materials, Inc. (NYSE:MLM)?

At the end of the second quarter, a total of 51 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 16% from the previous quarter. By comparison, 40 hedge funds held shares or bullish call options in MLM a year ago. With hedgies' sentiment swirling, there exists a few key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

More specifically, Select Equity Group was the largest shareholder of Martin Marietta Materials, Inc. (NYSE:MLM), with a stake worth $668.5 million reported as of the end of September. Trailing Select Equity Group was Gardner Russo & Gardner, which amassed a stake valued at $323.1 million. Iridian Asset Management, Alkeon 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 Lafitte Capital Management allocated the biggest weight to Martin Marietta Materials, Inc. (NYSE:MLM), around 8.16% of its 13F portfolio. East Side Capital (RR Partners) is also relatively very bullish on the stock, dishing out 8.13 percent of its 13F equity portfolio to MLM.

As aggregate interest increased, specific money managers were breaking ground themselves. Balyasny Asset Management, managed by Dmitry Balyasny, established the most outsized position in Martin Marietta Materials, Inc. (NYSE:MLM). Balyasny Asset Management had $25.9 million invested in the company at the end of the quarter. Mark Coe's Intrinsic Edge Capital also initiated a $14 million position during the quarter. The following funds were also among the new MLM investors: Richard Chilton's Chilton Investment Company, Dov Gertzulin's DG Capital Management, and Guy Shahar's DSAM Partners.

Let's check out hedge fund activity in other stocks similar to Martin Marietta Materials, Inc. (NYSE:MLM). These stocks are Carnival Corporation & Plc (NYSE:CCL), Zillow Group Inc (NASDAQ:Z), Markel Corporation (NYSE:MKL), SK Telecom Co., Ltd. (NYSE:SKM), Insulet Corporation (NASDAQ:PODD), J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT), and Expeditors International of Washington, Inc. (NASDAQ:EXPD). This group of stocks' market values match MLM's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CCL,31,362150,0 Z,59,2299780,22 MKL,33,943795,1 SKM,8,129598,3 PODD,44,985462,8 JBHT,24,215950,-1 EXPD,33,443457,2 Average,33.1,768599,5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.1 hedge funds with bullish positions and the average amount invested in these stocks was $769 million. That figure was $1594 million in MLM's case. Zillow Group Inc (NASDAQ:Z) is the most popular stock in this table. On the other hand SK Telecom Co., Ltd. (NYSE:SKM) is the least popular one with only 8 bullish hedge fund positions. Martin Marietta Materials, Inc. (NYSE:MLM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MLM is 81.6. 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 30% in 2020 through October 23rd and still beat the market by 21 percentage points. Hedge funds were also right about betting on MLM as the stock returned 27.4% since the end of Q2 (through 10/23) 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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