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Were Hedge Funds Right About Merit Medical Systems, Inc. (MMSI)?

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Is Merit Medical Systems, Inc. (NASDAQ:MMSI) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Merit Medical Systems, Inc. (NASDAQ:MMSI) was in 18 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 20. MMSI investors should be aware of a decrease in hedge fund sentiment in recent months. There were 20 hedge funds in our database with MMSI positions at the end of the fourth quarter. Our calculations also showed that MMSI 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.

TUDOR INVESTMENT CORP
TUDOR INVESTMENT CORP

Paul Tudor Jones of Tudor Investment Corp

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 analyze the fresh hedge fund action encompassing Merit Medical Systems, Inc. (NASDAQ:MMSI).

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

At first quarter's end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the fourth quarter of 2020. Below, you can check out the change in hedge fund sentiment towards MMSI over the last 23 quarters. With hedgies' capital changing hands, there exists a select group of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Is MMSI A Good Stock To Buy?
Is MMSI A Good Stock To Buy?

Among these funds, Starboard Value LP held the most valuable stake in Merit Medical Systems, Inc. (NASDAQ:MMSI), which was worth $223.9 million at the end of the fourth quarter. On the second spot was Polar Capital which amassed $41.2 million worth of shares. D E Shaw, Fisher Asset Management, and Balyasny Asset Management 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 Starboard Value LP allocated the biggest weight to Merit Medical Systems, Inc. (NASDAQ:MMSI), around 4.78% of its 13F portfolio. 13D Management is also relatively very bullish on the stock, dishing out 3.05 percent of its 13F equity portfolio to MMSI.

Due to the fact that Merit Medical Systems, Inc. (NASDAQ:MMSI) has experienced bearish sentiment from the smart money, logic holds that there exists a select few hedgies who sold off their positions entirely heading into Q2. Interestingly, Israel Englander's Millennium Management dumped the biggest stake of all the hedgies tracked by Insider Monkey, totaling about $6.1 million in stock. Paul Tudor Jones's fund, Tudor Investment Corp, also cut its stock, about $1 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest dropped by 2 funds heading into Q2.

Let's also examine hedge fund activity in other stocks similar to Merit Medical Systems, Inc. (NASDAQ:MMSI). These stocks are Fabrinet (NYSE:FN), PTC Therapeutics, Inc. (NASDAQ:PTCT), LCI Industries (NYSE:LCII), ServisFirst Bancshares, Inc. (NASDAQ:SFBS), Pluralsight, Inc. (NASDAQ:PS), Avista Corp (NYSE:AVA), and DouYu International Holdings Limited (NASDAQ:DOYU). This group of stocks' market valuations are closest to MMSI's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FN,15,100470,2 PTCT,24,231769,1 LCII,18,159246,2 SFBS,9,9892,0 PS,34,858839,-1 AVA,15,56958,5 DOYU,29,327651,2 Average,20.6,249261,1.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.6 hedge funds with bullish positions and the average amount invested in these stocks was $249 million. That figure was $350 million in MMSI's case. Pluralsight, Inc. (NASDAQ:PS) is the most popular stock in this table. On the other hand ServisFirst Bancshares, Inc. (NASDAQ:SFBS) is the least popular one with only 9 bullish hedge fund positions. Merit Medical Systems, Inc. (NASDAQ:MMSI) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MMSI is 48. 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 negative signal and 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 surpassed the market again by 10.1 percentage points. Unfortunately MMSI wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); MMSI investors were disappointed as the stock returned 7.3% 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 most of these stocks already outperformed the market in 2021.

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