Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we publish an article with the title “Recession is Imminent: We Need A Travel Ban NOW”. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president.
Keeping this in mind, let’s see whether Martin Marietta Materials, Inc. (NYSE:MLM) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Martin Marietta Materials, Inc. (NYSE:MLM) has seen an increase in hedge fund sentiment of late. MLM was in 52 hedge funds’ portfolios at the end of December. There were 43 hedge funds in our database with MLM positions at the end of the previous quarter. Our calculations also showed that MLM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to 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 41 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.
Ken Heebner of Capital Growth Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind let’s take a peek at the key hedge fund action regarding Martin Marietta Materials, Inc. (NYSE:MLM).
How have hedgies been trading Martin Marietta Materials, Inc. (NYSE:MLM)?
Heading into the first quarter of 2020, a total of 52 of the hedge funds tracked by Insider Monkey were long this stock, a change of 21% from one quarter earlier. On the other hand, there were a total of 34 hedge funds with a bullish position in MLM a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Select Equity Group was the largest shareholder of Martin Marietta Materials, Inc. (NYSE:MLM), with a stake worth $731.6 million reported as of the end of September. Trailing Select Equity Group was Gardner Russo & Gardner, which amassed a stake valued at $471.8 million. Egerton Capital Limited, Alkeon Capital Management, and Lomas Capital 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 Lomas Capital Management allocated the biggest weight to Martin Marietta Materials, Inc. (NYSE:MLM), around 7.75% of its 13F portfolio. East Side Capital (RR Partners) is also relatively very bullish on the stock, earmarking 7.38 percent of its 13F equity portfolio to MLM.
As aggregate interest increased, key hedge funds have jumped into Martin Marietta Materials, Inc. (NYSE:MLM) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the biggest position in Martin Marietta Materials, Inc. (NYSE:MLM). Arrowstreet Capital had $30.1 million invested in the company at the end of the quarter. Ken Heebner’s Capital Growth Management also initiated a $29.4 million position during the quarter. The other funds with new positions in the stock are Renaissance Technologies, Clint Carlson’s Carlson Capital, and Noam Gottesman’s GLG Partners.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Martin Marietta Materials, Inc. (NYSE:MLM) but similarly valued. We will take a look at Teleflex Incorporated (NYSE:TFX), Altice USA, Inc. (NYSE:ATUS), Arch Capital Group Ltd. (NASDAQ:ACGL), and Church & Dwight Co., Inc. (NYSE:CHD). This group of stocks’ market values are similar to MLM’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TFX | 32 | 936280 | 4 |
| ATUS | 54 | 3046592 | -1 |
| ACGL | 23 | 1250755 | 1 |
| CHD | 37 | 359916 | 0 |
| Average | 36.5 | 1398386 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 36.5 hedge funds with bullish positions and the average amount invested in these stocks was $1398 million. That figure was $2345 million in MLM’s case. Altice USA, Inc. (NYSE:ATUS) is the most popular stock in this table. On the other hand Arch Capital Group Ltd. (NASDAQ:ACGL) is the least popular one with only 23 bullish hedge fund positions. Martin Marietta Materials, Inc. (NYSE:MLM) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th but beat the market by 1.9 percentage points. Unfortunately MLM wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MLM were disappointed as the stock returned -23.6% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
