Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published 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 (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. At Insider Monkey, we pore over the filings of nearly 835 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not Mercury Systems Inc (NASDAQ:MRCY) makes for a good investment right now.
Is Mercury Systems Inc (NASDAQ:MRCY) undervalued? The smart money is becoming hopeful. The number of bullish hedge fund positions increased by 2 in recent months. Our calculations also showed that MRCY 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 most market participants, hedge funds are perceived as underperforming, old financial tools of years past. While there are over 8000 funds in operation at present, We hone in on the crème de la crème of this club, about 850 funds. It is estimated that this group of investors preside over the lion’s share of all hedge funds’ total capital, and by keeping track of their best equity investments, Insider Monkey has identified many investment strategies that have historically defeated the broader indices. Insider Monkey’s flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Ken Griffin of Citadel Investment Group
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 let’s take a gander at the fresh hedge fund action regarding Mercury Systems Inc (NASDAQ:MRCY).
Hedge fund activity in Mercury Systems Inc (NASDAQ:MRCY)
At the end of the fourth quarter, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards MRCY 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.
More specifically, D E Shaw was the largest shareholder of Mercury Systems Inc (NASDAQ:MRCY), with a stake worth $17.3 million reported as of the end of September. Trailing D E Shaw was G2 Investment Partners Management, which amassed a stake valued at $6.6 million. AQR Capital Management, Driehaus Capital, and PDT Partners 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 G2 Investment Partners Management allocated the biggest weight to Mercury Systems Inc (NASDAQ:MRCY), around 2.13% of its 13F portfolio. Prescott Group Capital Management is also relatively very bullish on the stock, designating 0.6 percent of its 13F equity portfolio to MRCY.
With a general bullishness amongst the heavyweights, key hedge funds have been driving this bullishness. Citadel Investment Group, managed by Ken Griffin, initiated the most valuable position in Mercury Systems Inc (NASDAQ:MRCY). Citadel Investment Group had $1.1 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also initiated a $0.5 million position during the quarter. The following funds were also among the new MRCY investors: Qing Li’s Sciencast Management, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and Jonathan Soros’s JS Capital.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Mercury Systems Inc (NASDAQ:MRCY) but similarly valued. We will take a look at Aaron’s, Inc. (NYSE:AAN), Compania de Minas Buenaventura S.A.A. (NYSE:BVN), Bank of Hawaii Corporation (NYSE:BOH), and Hancock Whitney Corporation (NASDAQ:HWC). This group of stocks’ market caps are similar to MRCY’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AAN | 32 | 368602 | 14 |
| BVN | 13 | 141024 | 5 |
| BOH | 16 | 142274 | 2 |
| HWC | 16 | 70660 | -4 |
| Average | 19.25 | 180640 | 4.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $181 million. That figure was $51 million in MRCY’s case. Aaron’s, Inc. (NYSE:AAN) is the most popular stock in this table. On the other hand Compania de Minas Buenaventura S.A.A. (NYSE:BVN) is the least popular one with only 13 bullish hedge fund positions. Mercury Systems Inc (NASDAQ:MRCY) is not the most popular stock in this group but hedge fund interest is still above average. 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 still beat the market by 5.5 percentage points. Hedge funds were also right about betting on MRCY as the stock returned 0.1% during the first quarter (through March 25th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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.
