Is Magnolia Oil & Gas Corporation (NYSE:MGY) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before doing days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also have numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Magnolia Oil & Gas Corporation (NYSE:MGY) was in 32 hedge funds’ portfolios at the end of December. MGY has seen a decrease in enthusiasm from smart money in recent months. There were 37 hedge funds in our database with MGY positions at the end of the previous quarter. Our calculations also showed that MGY isn’t among the 30 most popular stocks among hedge funds.
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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We’re going to take a look at the latest hedge fund action surrounding Magnolia Oil & Gas Corporation (NYSE:MGY).
What have hedge funds been doing with Magnolia Oil & Gas Corporation (NYSE:MGY)?
At the end of the fourth quarter, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MGY over the last 14 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, Encompass Capital Advisors was the largest shareholder of Magnolia Oil & Gas Corporation (NYSE:MGY), with a stake worth $53.8 million reported as of the end of September. Trailing Encompass Capital Advisors was Millennium Management, which amassed a stake valued at $39.9 million. Point72 Asset Management, Omega Advisors, and Moore Global Investments were also very fond of the stock, giving the stock large weights in their portfolios.
Judging by the fact that Magnolia Oil & Gas Corporation (NYSE:MGY) has faced declining sentiment from the entirety of the hedge funds we track, we can see that there were a few hedge funds who were dropping their full holdings in the third quarter. Interestingly, Robert Pohly’s Samlyn Capital sold off the biggest position of the “upper crust” of funds watched by Insider Monkey, comprising about $22.2 million in stock, and Paul Marshall and Ian Wace’s Marshall Wace LLP was right behind this move, as the fund dumped about $17.4 million worth. These transactions are interesting, as total hedge fund interest dropped by 5 funds in the third quarter.
Let’s go over hedge fund activity in other stocks similar to Magnolia Oil & Gas Corporation (NYSE:MGY). These stocks are The Boston Beer Company Inc (NYSE:SAM), Avista Corp (NYSE:AVA), Uniti Group Inc. (NASDAQ:UNIT), and Senior Housing Properties Trust (NASDAQ:SNH). This group of stocks’ market valuations resemble MGY’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SAM | 19 | 266550 | 5 |
| AVA | 18 | 265879 | 1 |
| UNIT | 14 | 218877 | 0 |
| SNH | 21 | 84531 | 8 |
| Average | 18 | 208959 | 3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $209 million. That figure was $264 million in MGY’s case. Senior Housing Properties Trust (NASDAQ:SNH) is the most popular stock in this table. On the other hand Uniti Group Inc. (NASDAQ:UNIT) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Magnolia Oil & Gas Corporation (NYSE:MGY) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on MGY, though not to the same extent, as the stock returned 22.8% and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.