We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether MasTec, Inc. (NYSE:MTZ) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
MasTec, Inc. (NYSE:MTZ) has seen an increase in enthusiasm from smart money of late. MTZ was in 41 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 33 hedge funds in our database with MTZ holdings 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 Q4 rankings and see the video at the end of this article for Q3 rankings).
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.
Cliff Asness of AQR Capital Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a peek at the fresh hedge fund action surrounding MasTec, Inc. (NYSE:MTZ).
How are hedge funds trading MasTec, Inc. (NYSE:MTZ)?
Heading into the first quarter of 2020, a total of 41 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 24% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MTZ over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the largest position in MasTec, Inc. (NYSE:MTZ). AQR Capital Management has a $58 million position in the stock, comprising 0.1% of its 13F portfolio. On AQR Capital Management’s heels is Alyeska Investment Group, managed by Anand Parekh, which holds a $32.9 million position; 0.5% of its 13F portfolio is allocated to the stock. Other members of the smart money with similar optimism include Ken Grossman and Glen Schneider’s SG Capital Management, Eric F. Billings’s Billings Capital Management and Alexander Mitchell’s Scopus Asset Management. In terms of the portfolio weights assigned to each position Billings Capital Management allocated the biggest weight to MasTec, Inc. (NYSE:MTZ), around 21.35% of its 13F portfolio. SG Capital Management is also relatively very bullish on the stock, earmarking 6.33 percent of its 13F equity portfolio to MTZ.
As aggregate interest increased, specific money managers have jumped into MasTec, Inc. (NYSE:MTZ) headfirst. SG Capital Management, managed by Ken Grossman and Glen Schneider, assembled the largest position in MasTec, Inc. (NYSE:MTZ). SG Capital Management had $32.2 million invested in the company at the end of the quarter. Clint Murray’s Lodge Hill Capital also made a $16.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Andrew Byington’s Appian Way Asset Management, Mark Coe’s Intrinsic Edge Capital, and Josh Donfeld and David Rogers’s Castle Hook Partners.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as MasTec, Inc. (NYSE:MTZ) but similarly valued. We will take a look at MSA Safety Incorporated (NYSE:MSA), Brunswick Corporation (NYSE:BC), Telecom Argentina S.A. (NYSE:TEO), and Millicom International Cellular S.A. (NASDAQ:TIGO). This group of stocks’ market caps match MTZ’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MSA | 15 | 44149 | 5 |
| BC | 36 | 675096 | 7 |
| TEO | 5 | 37708 | 1 |
| TIGO | 7 | 92775 | 1 |
| Average | 15.75 | 212432 | 3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $212 million. That figure was $286 million in MTZ’s case. Brunswick Corporation (NYSE:BC) is the most popular stock in this table. On the other hand Telecom Argentina S.A. (NYSE:TEO) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks MasTec, Inc. (NYSE:MTZ) is more popular among hedge funds. 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 17.4% in 2020 through March 25th and still beat the market by 5.5 percentage points. Unfortunately MTZ wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MTZ were disappointed as the stock returned -53.9% during the first two and a half months of 2020 (through March 25th) 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 most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
