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. How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Magellan Health Inc (NASDAQ:MGLN).
Magellan Health Inc (NASDAQ:MGLN) investors should pay attention to an increase in hedge fund interest lately. MGLN was in 19 hedge funds’ portfolios at the end of December. There were 18 hedge funds in our database with MGLN holdings at the end of the previous quarter. Our calculations also showed that MGLN 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).
According to most stock holders, hedge funds are viewed as unimportant, old investment tools of years past. While there are over 8000 funds with their doors open today, Our researchers choose to focus on the elite of this group, around 850 funds. These hedge fund managers oversee most of the smart money’s total capital, and by keeping track of their highest performing picks, Insider Monkey has revealed a few investment strategies that have historically exceeded Mr. Market. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points per annum 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 .
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. With all of this in mind let’s take a look at the latest hedge fund action regarding Magellan Health Inc (NASDAQ:MGLN).
What have hedge funds been doing with Magellan Health Inc (NASDAQ:MGLN)?
At Q4’s end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the third quarter of 2019. By comparison, 15 hedge funds held shares or bullish call options in MGLN a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Magellan Health Inc (NASDAQ:MGLN) was held by Starboard Value LP, which reported holding $185.4 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $52.7 million position. Other investors bullish on the company included D E Shaw, Millennium Management, and GLG Partners. In terms of the portfolio weights assigned to each position Starboard Value LP allocated the biggest weight to Magellan Health Inc (NASDAQ:MGLN), around 5.37% of its 13F portfolio. 13D Management is also relatively very bullish on the stock, designating 3.46 percent of its 13F equity portfolio to MGLN.
With a general bullishness amongst the heavyweights, specific money managers have jumped into Magellan Health Inc (NASDAQ:MGLN) headfirst. Point72 Asset Management, managed by Steve Cohen, created the most outsized position in Magellan Health Inc (NASDAQ:MGLN). Point72 Asset Management had $10.2 million invested in the company at the end of the quarter. Travis Cocke’s Voss Capital also made a $3.5 million investment in the stock during the quarter. The other funds with brand new MGLN positions are Bruce Kovner’s Caxton Associates LP and Benjamin A. Smith’s Laurion Capital Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Magellan Health Inc (NASDAQ:MGLN) but similarly valued. These stocks are Atkore International Group Inc. (NYSE:ATKR), Taubman Centers, Inc. (NYSE:TCO), Hostess Brands, Inc. (NASDAQ:TWNK), and Intra-Cellular Therapies Inc (NASDAQ:ITCI). All of these stocks’ market caps are similar to MGLN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ATKR | 23 | 183994 | 2 |
| TCO | 26 | 128381 | 2 |
| TWNK | 37 | 288944 | 4 |
| ITCI | 12 | 135601 | 1 |
| Average | 24.5 | 184230 | 2.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $184 million. That figure was $381 million in MGLN’s case. Hostess Brands, Inc. (NASDAQ:TWNK) is the most popular stock in this table. On the other hand Intra-Cellular Therapies Inc (NASDAQ:ITCI) is the least popular one with only 12 bullish hedge fund positions. Magellan Health Inc (NASDAQ:MGLN) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately MGLN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MGLN investors were disappointed as the stock returned -37.6% 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 most of these stocks already outperformed the market in 2020.
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.
