Was The Smart Money Right About MRC Global Inc (MRC)?

Hedge funds don’t get the respect they used to get. Nowadays investors prefer passive funds over actively managed funds. One thing they don’t realize is that 100% of the passive funds didn’t see the coronavirus recession coming, but a lot of hedge funds did. Even we published an article near the end of February and predicted a US recession. Think about all the losses you could have avoided if you sold your shares in February and bought them back at the end of March. In this article we are going to take a closer look at hedge fund sentiment surrounding MRC Global Inc (NYSE:MRC).

Is MRC Global Inc (NYSE:MRC) undervalued? The smart money is getting more optimistic. The number of bullish hedge fund positions moved up by 4 recently. Our calculations also showed that MRC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). MRC was in 20 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 16 hedge funds in our database with MRC positions at the end of the previous quarter.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Paul Marshall of Marshall Wace

We leave no stone unturned when looking for the next great investment idea. For example, this investor can predict short term winners following earnings announcements with 77% accuracy, so we check out his stock picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a look at the latest hedge fund action regarding MRC Global Inc (NYSE:MRC).

How have hedgies been trading MRC Global Inc (NYSE:MRC)?

Heading into the first quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 25% from the previous quarter. By comparison, 15 hedge funds held shares or bullish call options in MRC a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

More specifically, D E Shaw was the largest shareholder of MRC Global Inc (NYSE:MRC), with a stake worth $20.3 million reported as of the end of September. Trailing D E Shaw was Renaissance Technologies, which amassed a stake valued at $12.8 million. Impax Asset Management, Citadel Investment Group, and Luminus 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 Luminus Management allocated the biggest weight to MRC Global Inc (NYSE:MRC), around 0.3% of its 13F portfolio. AlphaCrest Capital Management is also relatively very bullish on the stock, earmarking 0.14 percent of its 13F equity portfolio to MRC.

Consequently, some big names were breaking ground themselves. PDT Partners, managed by Peter Muller, established the most outsized position in MRC Global Inc (NYSE:MRC). PDT Partners had $2.2 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $0.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Michael Gelband’s ExodusPoint Capital, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Noam Gottesman’s GLG Partners.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as MRC Global Inc (NYSE:MRC) but similarly valued. We will take a look at Big Lots, Inc. (NYSE:BIG), Natus Medical Incorporated (NASDAQ:NTUS), Aerie Pharmaceuticals Inc (NASDAQ:AERI), and Fangdd Network Group Ltd. (NASDAQ:DUO). This group of stocks’ market valuations resemble MRC’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $148 million. That figure was $72 million in MRC’s case. Big Lots, Inc. (NYSE:BIG) is the most popular stock in this table. On the other hand Fangdd Network Group Ltd. (NASDAQ:DUO) is the least popular one with only 1 bullish hedge fund positions. MRC Global Inc (NYSE:MRC) 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately MRC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MRC were disappointed as the stock returned -65% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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