It’s that time of the year when investors have their ears to the ground as they wait to hear the second quarter results of different companies (and ideally, the rumblings of what those results will hold before the fact). MSC Industrial Direct Co Inc (NYSE:MSM) is one company that just issued its latest quarterly results, though in this case it was for the company’s fiscal third quarter, for the period ended June 30, 2015. The company posted earnings per share of $1.03, beating analysts’ consensus estimate of $0.96. This was on revenue of $745.50 million, which also slightly beat analysts’ consensus estimate of $745.04 million. During the same quarter last year, the company posted earnings per share of $1.06 on revenue of $661.51 million. Forward looking, the company issued earnings per share guidance of $0.93-$0.97 for its fiscal fourth quarter, slightly below Thomson Reuters estimate of $0.99. Nonetheless, shares have jumped on this morning on the results, up by more than 5% at one point, though they have since slid back to gains of just over 2% for the day.
Hedge fund interest in the company was relatively flat during the first quarter, as hedgies largely held onto their positions during a poor quarter in which shares slid by more than 11%. The number of hedge funds invested in MSC Industrial Direct Co Inc (NYSE:MSM) at the end of the first quarter of 2015 was 18 out of the more than 700 in our database, representing an increase of only one hedge fund compared to the number of hedge funds with holdings at the end of the fourth quarter of 2014. However, the value of hedge funds’ holdings in the company was down to $669.08 million compared to $771.16 million at the end of the previous quarter, a decrease of a little over 13%, showing a mild selling of shares by funds collective, factoring in the depreciation of the shares.
Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research has shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return more than 135% over the last 34 months and outperformed the S&P 500 Index by 80 percentage points (see the details here).
Another thing that investors should track is insider trades, as they give insight into the prospects of a company, since insiders tend to have access to the most detailed company information. Over the past three months, MSC Industrial Direct Co Inc (NYSE:MSM) has only had four insider trades, involving three company officials and consisting of two acquisitions, one disposition, and one sale. The total number of shares traded within the period stood at 13,411 shares.
What does the smart money think about MSC Industrial Direct Co Inc (NYSE:MSM)?
There wasn’t much activity among the top holders of the stock during the first quarter of 2015. A number of the hedge funds that were invested in the stock either increased or reduced their positions in the stock, but only slightly. The biggest shareholder at the end of the first quarter was Robert Joseph Caruso’s Select Equity Group, which held a total of 4.04 million shares after raising its position in the stock by 5%. The stock represents 2.65% of its total portfolio. Other notable shareholders were William Von Mueffling‘s Cantillon Capital Management with 2.33 million shares, and Chuck Royce‘s Royce & Associates with a total of 1.43 million shares.
Among the top ten biggest shareholders of the stock, notable sellers were billionaire Ken Griffin’s Citadel Investment Group, which reduced its stake by 29% and billionaire Jim Simons’ Renaissance Technologies, which reduced its position by 48%.
Given the insider purchases which we consider a strong indicator of good future performance, followed by the company’s earnings beat, we believe this stock is a solid investment at this time, considering also its 2.30% dividend yield, even given the soft future guidance.
Disclosure: None
