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 Mistras Group, Inc. (NYSE:MG) and determine whether hedge funds had an edge regarding this stock.
Mistras Group, Inc. (NYSE:MG) investors should be aware of a decrease in hedge fund interest in recent months. MG was in 13 hedge funds’ portfolios at the end of the first quarter of 2020. There were 15 hedge funds in our database with MG holdings at the end of the previous quarter. Our calculations also showed that MG isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Paul Tudor Jones of Tudor Investment Corp
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 10 states that pay the most federal taxes to identify emerging trends that are likely to lead to 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s review the new hedge fund action encompassing Mistras Group, Inc. (NYSE:MG).
What have hedge funds been doing with Mistras Group, Inc. (NYSE:MG)?
Heading into the second quarter of 2020, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MG over the last 18 quarters. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
Among these funds, Royce & Associates held the most valuable stake in Mistras Group, Inc. (NYSE:MG), which was worth $3 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $2.6 million worth of shares. D E Shaw, Arrowstreet Capital, and Millennium Management 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 Rutabaga Capital Management allocated the biggest weight to Mistras Group, Inc. (NYSE:MG), around 0.27% of its 13F portfolio. Invenomic Capital Management is also relatively very bullish on the stock, earmarking 0.24 percent of its 13F equity portfolio to MG.
Because Mistras Group, Inc. (NYSE:MG) has witnessed bearish sentiment from the smart money, we can see that there exists a select few hedge funds that decided to sell off their positions entirely heading into Q4. Interestingly, Richard S. Meisenberg’s ACK Asset Management dropped the biggest investment of the “upper crust” of funds followed by Insider Monkey, worth about $9.7 million in stock. Minhua Zhang’s fund, Weld Capital Management, also cut its stock, about $0.4 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 2 funds heading into Q4.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Mistras Group, Inc. (NYSE:MG) but similarly valued. These stocks are American Superconductor Corporation (NASDAQ:AMSC), Oak Valley Bancorp (NASDAQ:OVLY), Vaxart, Inc. (NASDAQ:VXRT), and Tuniu Corporation (NASDAQ:TOUR). All of these stocks’ market caps match MG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AMSC | 10 | 18917 | -1 |
| OVLY | 1 | 207 | -1 |
| VXRT | 4 | 48532 | 2 |
| TOUR | 2 | 7322 | -1 |
| Average | 4.25 | 18745 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 4.25 hedge funds with bullish positions and the average amount invested in these stocks was $19 million. That figure was $12 million in MG’s case. American Superconductor Corporation (NASDAQ:AMSC) is the most popular stock in this table. On the other hand Oak Valley Bancorp (NASDAQ:OVLY) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Mistras Group, Inc. (NYSE:MG) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th and still beat the market by 16.8 percentage points. Unfortunately MG wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MG were disappointed as the stock returned -11.3% during the second quarter (through June 25th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.
