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Were Hedge Funds Right About Madrigal Pharmaceuticals, Inc. (MDGL)?

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The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the first quarter, which unveil their equity positions as of March 31st. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL).

Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL) was in 17 hedge funds' portfolios at the end of March. The all time high for this statistic is 26. MDGL has seen an increase in activity from the world's largest hedge funds of late. There were 15 hedge funds in our database with MDGL positions at the end of the fourth quarter. Our calculations also showed that MDGL isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Felix Baker - Baker Bros.
Felix Baker - Baker Bros.

Felix Baker of Baker Bros.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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. With all of this in mind let's review the key hedge fund action surrounding Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL).

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

At first quarter's end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MDGL over the last 23 quarters. With the smart money's capital changing hands, there exists a few noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Julian Baker and Felix Baker's Baker Bros. Advisors has the number one position in Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL), worth close to $175.4 million, accounting for 0.8% of its total 13F portfolio. Sitting at the No. 2 spot is Avoro Capital Advisors (venBio Select Advisor), managed by Behzad Aghazadeh, which holds a $166.7 million position; the fund has 2.9% of its 13F portfolio invested in the stock. Some other peers with similar optimism encompass Steven Boyd's Armistice Capital, Kris Jenner, Gordon Bussard, Graham McPhail's Rock Springs Capital Management and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Avoro Capital Advisors (venBio Select Advisor) allocated the biggest weight to Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL), around 2.88% of its 13F portfolio. Tao Capital is also relatively very bullish on the stock, dishing out 1.74 percent of its 13F equity portfolio to MDGL.

Now, some big names were breaking ground themselves. Partner Fund Management, managed by Christopher James, created the biggest position in Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL). Partner Fund Management had $9.7 million invested in the company at the end of the quarter. Phill Gross and Robert Atchinson's Adage Capital Management also made a $7.3 million investment in the stock during the quarter. The following funds were also among the new MDGL investors: Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors, Noam Gottesman's GLG Partners, and Israel Englander's Millennium Management.

Let's also examine 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 ADC Therapeutics SA (NYSE:ADCT), NuStar Energy L.P. (NYSE:NS), Kura Oncology, Inc. (NASDAQ:KURA), Vista Outdoor Inc (NYSE:VSTO), Washington Real Estate Investment Trust (NYSE:WRE), Myovant Sciences Ltd. (NYSE:MYOV), and JinkoSolar Holding Co., Ltd. (NYSE:JKS). This group of stocks' market caps match MDGL's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ADCT,8,233473,-4 NS,4,17919,0 KURA,32,591074,-11 VSTO,22,344887,-1 WRE,10,64215,-1 MYOV,15,94370,-2 JKS,13,91194,-5 Average,14.9,205305,-3.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.9 hedge funds with bullish positions and the average amount invested in these stocks was $205 million. That figure was $494 million in MDGL's case. Kura Oncology, Inc. (NASDAQ:KURA) is the most popular stock in this table. On the other hand NuStar Energy L.P. (NYSE:NS) is the least popular one with only 4 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 overall hedge fund sentiment score for MDGL is 49.8. 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. This is a slightly positive signal but we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.5% in 2021 through July 23rd and beat the market again by 10.1 percentage points. Unfortunately MDGL wasn't nearly as popular as these 5 stocks and hedge funds that were betting on MDGL were disappointed as the stock returned -24.2% since the end of March (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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