Did Hedge Funds Make The Right Call On MasTec, Inc. (MTZ) ?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding MasTec, Inc. (NYSE:MTZ) and determine whether hedge funds had an edge regarding this stock.

MasTec, Inc. (NYSE:MTZ) was in 24 hedge funds’ portfolios at the end of the first quarter of 2020. MTZ has seen a decrease in activity from the world’s largest hedge funds in recent months. There were 41 hedge funds in our database with MTZ positions at the end of the previous quarter. Our calculations also showed that MTZ isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Chuck Royce of Royce & Associates

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. With all of this in mind let’s go over the latest hedge fund action encompassing MasTec, Inc. (NYSE:MTZ).

How have hedgies been trading MasTec, Inc. (NYSE:MTZ)?

At the end of the first quarter, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -41% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards MTZ over the last 18 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Cliff Asness’s AQR Capital Management has the largest position in MasTec, Inc. (NYSE:MTZ), worth close to $39.4 million, comprising 0.1% of its total 13F portfolio. On AQR Capital Management’s heels is Anand Parekh of Alyeska Investment Group, with a $12.6 million position; 0.3% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that are bullish consist of Ken Griffin’s Citadel Investment Group, Eric F. Billings’s Billings Capital Management and Clint Murray’s Lodge Hill Capital. In terms of the portfolio weights assigned to each position Billings Capital Management allocated the biggest weight to MasTec, Inc. (NYSE:MTZ), around 15.44% of its 13F portfolio. Lodge Hill Capital is also relatively very bullish on the stock, dishing out 2.75 percent of its 13F equity portfolio to MTZ.

Because MasTec, Inc. (NYSE:MTZ) has experienced declining sentiment from the smart money, logic holds that there was a specific group of hedge funds that elected to cut their full holdings last quarter. Interestingly, Alexander Mitchell’s Scopus Asset Management cut the largest position of the 750 funds watched by Insider Monkey, totaling about $20.6 million in stock, and Noam Gottesman’s GLG Partners was right behind this move, as the fund said goodbye to about $14.6 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 17 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as MasTec, Inc. (NYSE:MTZ) but similarly valued. These stocks are AutoNation, Inc. (NYSE:AN), Avnet, Inc. (NYSE:AVT), Werner Enterprises, Inc. (NASDAQ:WERN), and Cenovus Energy Inc (NYSE:CVE). This group of stocks’ market caps resemble MTZ’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $244 million. That figure was $100 million in MTZ’s case. AutoNation, Inc. (NYSE:AN) is the most popular stock in this table. On the other hand Werner Enterprises, Inc. (NASDAQ:WERN) is the least popular one with only 17 bullish hedge fund positions. MasTec, Inc. (NYSE:MTZ) is not the most popular stock in this group but hedge fund interest is still above average. 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 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on MTZ as the stock returned 37.1% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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