Morgan Stanley (MS): Are Hedge Funds Right About This Stock?

You probably know from experience that there is not as much information on small-cap companies as there is on large companies. Of course, this makes it really hard and difficult for individual investors to make proper and accurate analysis of certain small-cap companies. However, well-known and successful hedge fund investors like Carl Icahn and George Soros hold the necessary resources and abilities to conduct an extensive stock analysis on small-cap stocks, which enable them to make millions of dollars by identifying potential winners within the small-cap galaxy of stocks. This represents the main reason why Insider Monkey takes notice of the hedge fund activity in these overlooked stocks.

Morgan Stanley (NYSE:MS) shareholders have witnessed an increase in hedge fund interest of late. MS was in 57 hedge funds’ portfolios at the end of the third quarter of 2015. There were 48 hedge funds in our database with MS holdings at the end of the previous quarter. 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 Valeant Pharmaceuticals Intl Inc (NYSE:VRX), Kinder Morgan Inc (NYSE:KMI), and Abbott Laboratories (NYSE:ABT) to gather more data points.

In today’s marketplace there are a multitude of formulas stock market investors can use to evaluate publicly traded companies. Two of the less utilized formulas are hedge fund and insider trading moves. We have shown that, historically, those who follow the top picks of the top investment managers can outclass the S&P 500 by a solid amount (see the details here).

Now, we’re going to review the key action encompassing Morgan Stanley (NYSE:MS).

Hedge fund activity in Morgan Stanley (NYSE:MS)

Heading into Q4, a total of 57 of the hedge funds tracked by Insider Monkey were long this stock, an increase of 19% from the second quarter. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Eagle Capital Management, managed by Boykin Curry, holds the number one position in Morgan Stanley (NYSE:MS), worth some $507 million at the end of the quarter and comprising 2.2% of its 13F portfolio. On Eagle Capital Management’s heels is Pzena Investment Management, managed by Richard S. Pzena, which holds a $304.9 million position; 1.9% of its 13F portfolio is allocated to the company. Remaining peers that hold long positions include Ken Heebner’s Capital Growth Management, Clifford Fox’s Columbus Circle Investors and Cliff Asness’s AQR Capital Management.

With a general bullishness amongst the heavyweights, specific money managers have jumped into Morgan Stanley (NYSE:MS) headfirst. Herring Creek Capital, managed by Steve Galbraith, initiated the biggest position in Morgan Stanley (NYSE:MS). The fund reportedly had $16.2 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also made a $15.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Charles Davidson’s Wexford Capital, Steve Cohen’s Point72 Asset Management, and David Keidan’s Buckingham Capital Management.

Let’s now review hedge fund activity in other stocks similar to Morgan Stanley (NYSE:MS). These stocks are Valeant Pharmaceuticals Intl Inc (NYSE:VRX), Kinder Morgan Inc (NYSE:KMI), Abbott Laboratories (NYSE:ABT), and ConocoPhillips (NYSE:COP). This group of stocks’ market values are closest to MS’s market value.

As you can see these stocks had an average of 65 hedge funds with bullish positions and the average amount invested in these stocks was $5.72 billion. That figure was $2.39 billion in MS’s case. Valeant Pharmaceuticals Intl Inc (NYSE:VRX) is the most popular stock in this table, whereas ConocoPhillips (NYSE:COP) is the least popular one with only 44 bullish hedge fund positions. Morgan Stanley (NYSE:MS) 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. Theoretically VRX would be a better candidate, but, given all the controversy around the company, we’d recommend further research into KMI to find out if it is a suitable candidate for a long position.