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Were Hedge Funds Right About Souring On Micron Technology, Inc. (MU)?

Debasis Saha
·6 min read

Micron Technology, Inc. (NASDAQ:MU) was in 84 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 94. MU investors should pay attention to a decrease in activity from the world's largest hedge funds lately. There were 94 hedge funds in our database with MU holdings at the end of March. Our calculations also showed that MU 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.

Peter Rathjens Arrowstreet Capital 394
Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

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. Now let's take a look at the key hedge fund action surrounding Micron Technology, Inc. (NASDAQ:MU).

What have hedge funds been doing with Micron Technology, Inc. (NASDAQ:MU)?

Heading into the third quarter of 2020, a total of 84 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in MU over the last 20 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is MU A Good Stock To Buy?
Is MU A Good Stock To Buy?

Among these funds, Arrowstreet Capital held the most valuable stake in Micron Technology, Inc. (NASDAQ:MU), which was worth $686.6 million at the end of the third quarter. On the second spot was Appaloosa Management LP which amassed $481.7 million worth of shares. Matrix Capital Management, AQR Capital Management, and D E Shaw 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 Mohnish Pabrai allocated the biggest weight to Micron Technology, Inc. (NASDAQ:MU), around 63.48% of its 13F portfolio. Lansdowne Partners is also relatively very bullish on the stock, earmarking 8.84 percent of its 13F equity portfolio to MU.

Since Micron Technology, Inc. (NASDAQ:MU) has faced a decline in interest from the entirety of the hedge funds we track, it's safe to say that there was a specific group of money managers that elected to cut their positions entirely last quarter. At the top of the heap, Alex Sacerdote's Whale Rock Capital Management said goodbye to the largest investment of the 750 funds tracked by Insider Monkey, worth about $129.2 million in stock, and Leon Shaulov's Maplelane Capital was right behind this move, as the fund sold off about $72.6 million worth. These transactions are interesting, as aggregate hedge fund interest fell by 10 funds last quarter.

Let's check out hedge fund activity in other stocks similar to Micron Technology, Inc. (NASDAQ:MU). These stocks are Chubb Limited (NYSE:CB), Ecolab Inc. (NYSE:ECL), Takeda Pharmaceutical Company Limited (NYSE:TAK), U.S. Bancorp (NYSE:USB), Applied Materials, Inc. (NASDAQ:AMAT), Illinois Tool Works Inc. (NYSE:ITW), and America Movil SAB de CV (NYSE:AMX). All of these stocks' market caps match MU's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CB,40,1288157,7 ECL,46,2099678,8 TAK,18,790266,-4 USB,48,6299135,-3 AMAT,58,2461809,2 ITW,35,565341,1 AMX,11,97994,0 Average,36.6,1943197,1.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.6 hedge funds with bullish positions and the average amount invested in these stocks was $1943 million. That figure was $4286 million in MU's case. Applied Materials, Inc. (NASDAQ:AMAT) is the most popular stock in this table. On the other hand America Movil SAB de CV (NYSE:AMX) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Micron Technology, Inc. (NASDAQ:MU) is more popular among hedge funds. Our overall hedge fund sentiment score for MU is 71.8. 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. 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 29.2% in 2020 through October 16th and still beat the market by 19.7 percentage points. Unfortunately MU wasn't nearly as popular as these 10 stocks and hedge funds that were betting on MU were disappointed as the stock returned 0.2% since the end of the second quarter (through 10/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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

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