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 Meredith Corporation (NYSE:MDP) and determine whether hedge funds had an edge regarding this stock.
Meredith Corporation (NYSE:MDP) investors should pay attention to an increase in hedge fund interest lately. Meredith Corporation (NYSE:MDP) was in 20 hedge funds’ portfolios at the end of June. The all time high for this statistics is 20. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 16 hedge funds in our database with MDP holdings at the end of March. Our calculations also showed that MDP 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.
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 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
John Rogers of Ariel Investments
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. 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 we’re going to analyze the latest hedge fund action surrounding Meredith Corporation (NYSE:MDP).
How have hedgies been trading Meredith Corporation (NYSE:MDP)?
At the end of June, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from one quarter earlier. By comparison, 11 hedge funds held shares or bullish call options in MDP a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Select Equity Group held the most valuable stake in Meredith Corporation (NYSE:MDP), which was worth $50.1 million at the end of the third quarter. On the second spot was Ariel Investments which amassed $48.4 million worth of shares. Royce & Associates, Fairpointe Capital, and GAMCO Investors 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 Fairpointe Capital allocated the biggest weight to Meredith Corporation (NYSE:MDP), around 2.57% of its 13F portfolio. Ariel Investments is also relatively very bullish on the stock, earmarking 0.74 percent of its 13F equity portfolio to MDP.
As industrywide interest jumped, specific money managers were leading the bulls’ herd. Select Equity Group, managed by Robert Joseph Caruso, assembled the most valuable position in Meredith Corporation (NYSE:MDP). Select Equity Group had $50.1 million invested in the company at the end of the quarter. Thyra Zerhusen’s Fairpointe Capital also initiated a $17.6 million position during the quarter. The following funds were also among the new MDP investors: Cliff Asness’s AQR Capital Management, Michael Gelband’s ExodusPoint Capital, and Mika Toikka’s AlphaCrest Capital Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Meredith Corporation (NYSE:MDP) but similarly valued. We will take a look at Pampa Energia S.A. (NYSE:PAM), TPG RE Finance Trust, Inc. (NYSE:TRTX), IMAX Corporation (NYSE:IMAX), Premier Financial Corp. (NASDAQ:PFC), Quotient Technology Inc (NYSE:QUOT), Eagle Pharmaceuticals Inc (NASDAQ:EGRX), and Vaxart, Inc. (NASDAQ:VXRT). This group of stocks’ market valuations are closest to MDP’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PAM | 10 | 33729 | 3 |
| TRTX | 14 | 81771 | -3 |
| IMAX | 19 | 64964 | 2 |
| PFC | 10 | 48067 | 0 |
| QUOT | 13 | 268771 | -5 |
| EGRX | 16 | 132753 | 1 |
| VXRT | 7 | 57573 | 3 |
| Average | 12.7 | 98233 | 0.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.7 hedge funds with bullish positions and the average amount invested in these stocks was $98 million. That figure was $175 million in MDP’s case. IMAX Corporation (NYSE:IMAX) is the most popular stock in this table. On the other hand Vaxart, Inc. (NASDAQ:VXRT) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Meredith Corporation (NYSE:MDP) is more popular among hedge funds. Our overall hedge fund sentiment score for MDP is 39. 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 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. Unfortunately MDP wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MDP were disappointed as the stock returned -9.8% during the third quarter 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.
