The elite funds run by legendary investors such as David Tepper and Dan Loeb make hundreds of millions of dollars for themselves and their investors by spending enormous resources doing research on small cap stocks that big investment banks don’t follow. Because of their pay structures, they have strong incentives to do the research necessary to beat the market. That’s why we pay close attention to what they think in small cap stocks. In this article, we take a closer look at MSC Industrial Direct Co Inc (NYSE:MSM) from the perspective of those elite funds.
Is MSC Industrial Direct Co Inc (NYSE:MSM) worth your attention right now? Prominent investors are in a bullish mood. The number of bullish hedge fund bets moved up by 2 in recent months. Our calculations also showed that MSM isn’t among the 30 most popular stocks among hedge funds (view the video below). MSM was in 16 hedge funds’ portfolios at the end of June. There were 14 hedge funds in our database with MSM holdings at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a peek at the fresh hedge fund action regarding MSC Industrial Direct Co Inc (NYSE:MSM).
What does smart money think about MSC Industrial Direct Co Inc (NYSE:MSM)?
At Q2’s end, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from one quarter earlier. By comparison, 22 hedge funds held shares or bullish call options in MSM 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.
Among these funds, AQR Capital Management held the most valuable stake in MSC Industrial Direct Co Inc (NYSE:MSM), which was worth $28 million at the end of the second quarter. On the second spot was D E Shaw which amassed $14.2 million worth of shares. Moreover, Renaissance Technologies, Millennium Management, and Citadel Investment Group were also bullish on MSC Industrial Direct Co Inc (NYSE:MSM), allocating a large percentage of their portfolios to this stock.
With a general bullishness amongst the heavyweights, some big names were leading the bulls’ herd. Scopus Asset Management, managed by Alexander Mitchell, created the most valuable call position in MSC Industrial Direct Co Inc (NYSE:MSM). Scopus Asset Management had $3.7 million invested in the company at the end of the quarter. Hoon Kim’s Quantinno Capital also made a $0.7 million investment in the stock during the quarter. The following funds were also among the new MSM investors: Richard Driehaus’s Driehaus Capital, Matthew Hulsizer’s PEAK6 Capital Management, and Steve Cohen’s Point72 Asset Management.
Let’s check out hedge fund activity in other stocks similar to MSC Industrial Direct Co Inc (NYSE:MSM). We will take a look at Globus Medical Inc (NYSE:GMED), Equity Commonwealth (NYSE:EQC), Rayonier Inc. (NYSE:RYN), and CarGurus, Inc. (NASDAQ:CARG). This group of stocks’ market caps are similar to MSM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GMED | 19 | 170998 | -5 |
| EQC | 20 | 196634 | -1 |
| RYN | 14 | 318668 | 0 |
| CARG | 20 | 911709 | -4 |
| Average | 18.25 | 399502 | -2.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $400 million. That figure was $75 million in MSM’s case. Equity Commonwealth (NYSE:EQC) is the most popular stock in this table. On the other hand Rayonier Inc. (NYSE:RYN) is the least popular one with only 14 bullish hedge fund positions. MSC Industrial Direct Co Inc (NYSE:MSM) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately MSM wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MSM investors were disappointed as the stock returned -1.3% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.
Disclosure: None. This article was originally published at Insider Monkey.
