As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the fourth quarter of 2019. A significant number of hedge funds continued their strong performance in 2020 and 2021 as well. We get to see hedge funds’ thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about Mayville Engineering Company, Inc. (NYSE:MEC).
Is MEC a good stock to buy? Hedge fund interest in Mayville Engineering Company, Inc. (NYSE:MEC) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that MEC isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Immersion Corporation (NASDAQ:IMMR), NuStar GP Holdings, LLC (NYSE:NSH), and First Choice Bancorp (NASDAQ:FCBP) to gather more data points.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Peter Rathjens of Arrowstreet Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund wants to buy this $28 biotech stock for $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now we’re going to take a glance at the recent hedge fund action surrounding Mayville Engineering Company, Inc. (NYSE:MEC).
Do Hedge Funds Think MEC Is A Good Stock To Buy Now?
At the end of the first quarter, a total of 3 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 4 hedge funds with a bullish position in MEC a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Mayville Engineering Company, Inc. (NYSE:MEC) was held by Roubaix Capital, which reported holding $2.7 million worth of stock at the end of December. It was followed by Renaissance Technologies with a $0.6 million position. The only other hedge fund that is bullish on the company was Arrowstreet Capital.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Bailard Inc. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Arrowstreet Capital).
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Mayville Engineering Company, Inc. (NYSE:MEC) but similarly valued. These stocks are Immersion Corporation (NASDAQ:IMMR), NuStar GP Holdings, LLC (NYSE:NSH), First Choice Bancorp (NASDAQ:FCBP), Progenity, Inc. (NASDAQ:PROG), Infinity Pharmaceuticals Inc. (NASDAQ:INFI), Exagen Inc. (NASDAQ:XGN), and Newpark Resources Inc (NYSE:NR). This group of stocks’ market values match MEC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IMMR | 20 | 71443 | 0 |
| NSH | 21 | 110081 | 1 |
| FCBP | 4 | 3484 | 1 |
| PROG | 9 | 17814 | 0 |
| INFI | 15 | 84862 | 7 |
| XGN | 10 | 33248 | 9 |
| NR | 14 | 26587 | 0 |
| Average | 13.3 | 49646 | 2.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.3 hedge funds with bullish positions and the average amount invested in these stocks was $50 million. That figure was $4 million in MEC’s case. NuStar GP Holdings, LLC (NYSE:NSH) is the most popular stock in this table. On the other hand First Choice Bancorp (NASDAQ:FCBP) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Mayville Engineering Company, Inc. (NYSE:MEC) is even less popular than FCBP. Our overall hedge fund sentiment score for MEC is 13.2. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Hedge funds clearly dropped the ball on MEC as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.2% in 2021 through June 11th and still beat the market by 3.3 percentage points. A small number of hedge funds were also right about betting on MEC as the stock returned 29.9% since Q1 (through June 11th) and outperformed the market by an even larger margin.
Follow Mayville Engineering Company Inc. (NYSE:MEC)
Follow Mayville Engineering Company Inc. (NYSE:MEC)
Disclosure: None. This article was originally published at Insider Monkey.
