Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Madrigal Pharmaceuticals Inc (NASDAQ:MDGL).
Madrigal Pharmaceuticals Inc (NASDAQ:MDGL) was in 6 hedge funds’ portfolios at the end of the third quarter of 2016. MDGL investors should pay attention to a decrease in hedge fund interest in recent months. There were 7 hedge funds in our database with MDGL holdings at the end of the second quarter. At the end of this article we will also compare MDGL to other stocks including QuinStreet Inc (NASDAQ:QNST), Ocean Rig UDW Inc (NASDAQ:ORIG), and Twin Disc, Incorporated (NASDAQ:TWIN) to get a better sense of its popularity.
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We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.
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How are hedge funds trading Madrigal Pharmaceuticals Inc (NASDAQ:MDGL)?
At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, down by 1 quarter-over-quarter. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Armistice Capital, led by Steven Boyd, holds the largest position in Madrigal Pharmaceuticals Inc (NASDAQ:MDGL). Armistice Capital has a $1.7 million position in the stock, comprising 0.5% of its 13F portfolio. Sitting at the No. 2 spot is Kris Jenner, Gordon Bussard, and Graham McPhail of Rock Springs Capital Management, with a $0.8 million position. Other professional money managers that hold long positions include Julian Baker and Felix Baker’s Baker Bros. Advisors, Jim Simons’ Renaissance Technologies, and Ken Griffin’s Citadel Investment Group. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds, which is based on the performance of their 13F long positions in non-micro-cap stocks.
Let’s now review hedge fund activity in other stocks similar to Madrigal Pharmaceuticals Inc (NASDAQ:MDGL). These stocks are QuinStreet Inc (NASDAQ:QNST), Ocean Rig UDW Inc (NASDAQ:ORIG), Twin Disc, Incorporated (NASDAQ:TWIN), and Talend SA ADR (NASDAQ:TLND). This group of stocks’ market values are similar to MDGL’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| QNST | 8 | 37673 | 0 |
| ORIG | 8 | 10427 | -3 |
| TWIN | 7 | 16632 | -1 |
| TLND | 7 | 14402 | 7 |
As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $20 million. That figure was $4 million in MDGL’s case. QuinStreet Inc (NASDAQ:QNST) is the most popular stock in this table. On the other hand Twin Disc, Incorporated (NASDAQ:TWIN) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Madrigal Pharmaceuticals Inc (NASDAQ:MDGL) is even less popular than TWIN and TLND. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock.
Disclosure: None