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 MDU Resources Group Inc (NYSE:MDU) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is MDU Resources Group Inc (NYSE:MDU) a splendid investment right now? Hedge funds are becoming hopeful. The number of long hedge fund bets rose by 7 in recent months. Our calculations also showed that MDU 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).
To the average investor there are a lot of metrics investors have at their disposal to value publicly traded companies. A couple of the most underrated metrics are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the top picks of the best hedge fund managers can outperform their index-focused peers by a superb margin (see the details here).
Phill Gross of Adage 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. Now let’s review the new hedge fund action encompassing MDU Resources Group Inc (NYSE:MDU).
What have hedge funds been doing with MDU Resources Group Inc (NYSE:MDU)?
Heading into the first quarter of 2020, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 30% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MDU over the last 18 quarters. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
More specifically, Citadel Investment Group was the largest shareholder of MDU Resources Group Inc (NYSE:MDU), with a stake worth $77.2 million reported as of the end of September. Trailing Citadel Investment Group was Millennium Management, which amassed a stake valued at $50.4 million. Adage Capital Management, Renaissance Technologies, and Two Sigma Advisors 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 Blackstart Capital allocated the biggest weight to MDU Resources Group Inc (NYSE:MDU), around 3.27% of its 13F portfolio. Intrinsic Edge Capital is also relatively very bullish on the stock, dishing out 1.41 percent of its 13F equity portfolio to MDU.
As one would reasonably expect, key money managers were breaking ground themselves. Winton Capital Management, managed by David Harding, initiated the largest position in MDU Resources Group Inc (NYSE:MDU). Winton Capital Management had $4.9 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also initiated a $1 million position during the quarter. The other funds with brand new MDU positions are Matthew Tewksbury’s Stevens Capital Management, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and Thomas Bailard’s Bailard Inc.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as MDU Resources Group Inc (NYSE:MDU) but similarly valued. We will take a look at Zscaler, Inc. (NASDAQ:ZS), Kinross Gold Corporation (NYSE:KGC), The Scotts Miracle-Gro Company (NYSE:SMG), and BWX Technologies Inc (NYSE:BWXT). This group of stocks’ market valuations are similar to MDU’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ZS | 18 | 89966 | -3 |
| KGC | 25 | 448750 | -3 |
| SMG | 31 | 365213 | -3 |
| BWXT | 22 | 81924 | -3 |
| Average | 24 | 246463 | -3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $246 million. That figure was $355 million in MDU’s case. The Scotts Miracle-Gro Company (NYSE:SMG) is the most popular stock in this table. On the other hand Zscaler, Inc. (NASDAQ:ZS) is the least popular one with only 18 bullish hedge fund positions. MDU Resources Group Inc (NYSE:MDU) 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 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately MDU wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MDU were disappointed as the stock returned -33% 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.
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.
