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 see whether Motorola Solutions Inc (NYSE:MSI) represents a good buying opportunity at the moment. Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Motorola Solutions Inc (NYSE:MSI) was in 41 hedge funds’ portfolios at the end of December. MSI investors should be aware of an increase in hedge fund sentiment in recent months. There were 37 hedge funds in our database with MSI positions at the end of the previous quarter. Our calculations also showed that MSI 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.
James Dondero of Highland 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 look at the recent hedge fund action surrounding Motorola Solutions Inc (NYSE:MSI).
How have hedgies been trading Motorola Solutions Inc (NYSE:MSI)?
Heading into the first quarter of 2020, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, a change of 11% from the third quarter of 2019. On the other hand, there were a total of 23 hedge funds with a bullish position in MSI a year ago. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
Among these funds, Millennium Management held the most valuable stake in Motorola Solutions Inc (NYSE:MSI), which was worth $79.8 million at the end of the third quarter. On the second spot was Newbrook Capital Advisors which amassed $64.3 million worth of shares. Citadel Investment Group, Adage Capital Management, and GLG 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 Clearfield Capital allocated the biggest weight to Motorola Solutions Inc (NYSE:MSI), around 5.89% of its 13F portfolio. Newbrook Capital Advisors is also relatively very bullish on the stock, designating 5.36 percent of its 13F equity portfolio to MSI.
Now, key money managers were leading the bulls’ herd. Renaissance Technologies, founded by Jim Simons, assembled the biggest position in Motorola Solutions Inc (NYSE:MSI). Renaissance Technologies had $46.2 million invested in the company at the end of the quarter. Ken Grossman and Glen Schneider’s SG Capital Management also initiated a $7 million position during the quarter. The other funds with brand new MSI positions are John Brandmeyer’s Cognios Capital, Ray Dalio’s Bridgewater Associates, and James Dondero’s Highland Capital Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Motorola Solutions Inc (NYSE:MSI) but similarly valued. These stocks are Eversource Energy (NYSE:ES), Nutrien Ltd. (NYSE:NTR), Cummins Inc. (NYSE:CMI), and PACCAR Inc (NASDAQ:PCAR). All of these stocks’ market caps match MSI’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ES | 24 | 452875 | 2 |
| NTR | 28 | 408982 | 0 |
| CMI | 39 | 768817 | 5 |
| PCAR | 36 | 216367 | 8 |
| Average | 31.75 | 461760 | 3.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.75 hedge funds with bullish positions and the average amount invested in these stocks was $462 million. That figure was $561 million in MSI’s case. Cummins Inc. (NYSE:CMI) is the most popular stock in this table. On the other hand Eversource Energy (NYSE:ES) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks Motorola Solutions Inc (NYSE:MSI) 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 but still managed to beat the market by 5.5 percentage points. Hedge funds were also right about betting on MSI as the stock returned -16.7% so far in Q1 (through March 25th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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.
