Investing in small cap stocks has historically been a way to outperform the market, as small cap companies typically grow faster on average than the blue chips. That outperformance comes with a price, however, as there are occasional periods of higher volatility. The one and a half month time period since the end of the third quarter is one of those periods, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by about 4 percentage points. Given that the funds we track tend to have a disproportionate amount of their portfolios in smaller cap stocks, they have seen some volatility in their portfolios too. Actually their moves are potentially one of the factors that contributed to this volatility. In this article, we use our extensive database of hedge fund holdings to find out what the smart money thinks of Medifast, Inc. (NYSE:MED).
Medifast, Inc. (NYSE:MED) was in 22 hedge funds’ portfolios at the end of the third quarter of 2018. MED has seen an increase in hedge fund sentiment in recent months. There were 20 hedge funds in our database with MED positions at the end of the previous quarter. Our calculations also showed that MED isn’t among the 30 most popular stocks among hedge funds.
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 flagship best performing hedge funds strategy returned 6.3% year to date (through December 3rd) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 18 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
We’re going to analyze the recent hedge fund action encompassing Medifast, Inc. (NYSE:MED).
What have hedge funds been doing with Medifast, Inc. (NYSE:MED)?
At Q3’s end, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 10% from one quarter earlier. By comparison, 16 hedge funds held shares or bullish call options in MED heading into this year. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
The largest stake in Medifast, Inc. (NYSE:MED) was held by Renaissance Technologies, which reported holding $212.3 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $51.3 million position. Other investors bullish on the company included 12 West Capital Management, Driehaus Capital, and GLG Partners.
With a general bullishness amongst the heavyweights, key money managers have jumped into Medifast, Inc. (NYSE:MED) headfirst. 12 West Capital Management, managed by Joel Ramin, assembled the most valuable position in Medifast, Inc. (NYSE:MED). 12 West Capital Management had $25.6 million invested in the company at the end of the quarter. David Costen Haley’s HBK Investments also made a $7.3 million investment in the stock during the quarter. The other funds with brand new MED positions are Steven Boyd’s Armistice Capital and Matthew Tewksbury’s Stevens Capital Management.
Let’s now take a look at hedge fund activity in other stocks similar to Medifast, Inc. (NYSE:MED). We will take a look at Seritage Growth Properties (NYSE:SRG), Xenia Hotels & Resorts Inc (NYSE:XHR), Cabot Microelectronics Corporation (NASDAQ:CCMP), and Dycom Industries, Inc. (NYSE:DY). This group of stocks’ market caps are closest to MED’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SRG | 14 | 412585 | -2 |
| XHR | 9 | 103413 | -3 |
| CCMP | 19 | 301066 | 0 |
| DY | 23 | 212220 | -3 |
| Average | 16.25 | 257321 | -2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $257 million. That figure was $419 million in MED’s case. Dycom Industries, Inc. (NYSE:DY) is the most popular stock in this table. On the other hand Xenia Hotels & Resorts Inc (NYSE:XHR) is the least popular one with only 9 bullish hedge fund positions. Medifast, Inc. (NYSE:MED) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard DY might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
