Should I Avoid Micron Technology, Inc. (MU)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 873 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their June 30th holdings, data that is available nowhere else. Should you consider Micron Technology, Inc. (NASDAQ:MU) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.

Is Micron Technology, Inc. (NASDAQ:MU) going to take off soon? Investors who are in the know were getting less optimistic. The number of bullish hedge fund positions were cut by 13 in recent months. Micron Technology, Inc. (NASDAQ:MU) was in 87 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 100. Our calculations also showed that MU ranked 30th among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Seth Klarman of Baupost Group

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now we’re going to take a glance at the key hedge fund action regarding Micron Technology, Inc. (NASDAQ:MU).

Do Hedge Funds Think MU Is A Good Stock To Buy Now?

At second quarter’s end, a total of 87 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the previous quarter. On the other hand, there were a total of 84 hedge funds with a bullish position in MU a year ago. With hedgies’ sentiment swirling, there exists a few notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

Among these funds, Arrowstreet Capital held the most valuable stake in Micron Technology, Inc. (NASDAQ:MU), which was worth $1262.8 million at the end of the second quarter. On the second spot was Baupost Group which amassed $608.7 million worth of shares. Citadel Investment Group, Appaloosa Management LP, and Matrix Capital 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 Mohnish Pabrai allocated the biggest weight to Micron Technology, Inc. (NASDAQ:MU), around 47.5% of its 13F portfolio. Pennant Capital Management is also relatively very bullish on the stock, earmarking 14.26 percent of its 13F equity portfolio to MU.

Since Micron Technology, Inc. (NASDAQ:MU) has experienced bearish sentiment from the smart money, we can see that there exists a select few funds who were dropping their positions entirely by the end of the second quarter. At the top of the heap, Gabriel Plotkin’s Melvin Capital Management dropped the largest stake of the 750 funds watched by Insider Monkey, worth about $110.3 million in stock, and Richard Driehaus’s Driehaus Capital was right behind this move, as the fund dumped about $75.5 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 13 funds by the end of the second quarter.

Let’s also examine hedge fund activity in other stocks similar to Micron Technology, Inc. (NASDAQ:MU). We will take a look at Moderna, Inc. (NASDAQ:MRNA), Uber Technologies, Inc. (NYSE:UBER), Anthem Inc (NYSE:ANTM), Lam Research Corporation (NASDAQ:LRCX), Airbnb, Inc. (NASDAQ:ABNB), British American Tobacco plc (NYSE:BTI), and Infosys Limited (NYSE:INFY). This group of stocks’ market caps resemble MU’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 55.6 hedge funds with bullish positions and the average amount invested in these stocks was $4372 million. That figure was $6333 million in MU’s case. Uber Technologies, Inc. (NYSE:UBER) is the most popular stock in this table. On the other hand British American Tobacco plc (NYSE:BTI) is the least popular one with only 12 bullish hedge fund positions. Micron Technology, Inc. (NASDAQ:MU) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MU is 48.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24.1% in 2021 through September 20th and beat the market again by 6.9 percentage points. Unfortunately MU wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on MU were disappointed as the stock returned -14.8% since the end of June (through 9/20) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.