Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Magenta Therapeutics, Inc. (NASDAQ:MGTA).
Is Magenta Therapeutics, Inc. (NASDAQ:MGTA) the right pick for your portfolio? The smart money was taking an optimistic view. The number of long hedge fund positions inched up by 1 lately. Magenta Therapeutics, Inc. (NASDAQ:MGTA) was in 17 hedge funds’ portfolios at the end of March. The all time high for this statistic is 22. Our calculations also showed that MGTA isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 16 hedge funds in our database with MGTA holdings at the end of December.
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 monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Oleg Nodelman of EcoR1 Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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. Keeping this in mind we’re going to view the new hedge fund action regarding Magenta Therapeutics, Inc. (NASDAQ:MGTA).
Do Hedge Funds Think MGTA Is A Good Stock To Buy Now?
At Q1’s end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the previous quarter. On the other hand, there were a total of 10 hedge funds with a bullish position in MGTA a year ago. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
The largest stake in Magenta Therapeutics, Inc. (NASDAQ:MGTA) was held by Casdin Capital, which reported holding $39.6 million worth of stock at the end of December. It was followed by Aquilo Capital Management with a $29.6 million position. Other investors bullish on the company included OrbiMed Advisors, Citadel Investment Group, and Cormorant Asset Management. In terms of the portfolio weights assigned to each position Aquilo Capital Management allocated the biggest weight to Magenta Therapeutics, Inc. (NASDAQ:MGTA), around 5.35% of its 13F portfolio. Casdin Capital is also relatively very bullish on the stock, dishing out 1.18 percent of its 13F equity portfolio to MGTA.
As industrywide interest jumped, key hedge funds have jumped into Magenta Therapeutics, Inc. (NASDAQ:MGTA) headfirst. OrbiMed Advisors, established the biggest position in Magenta Therapeutics, Inc. (NASDAQ:MGTA). OrbiMed Advisors had $11.2 million invested in the company at the end of the quarter. Bihua Chen’s Cormorant Asset Management also made a $7.1 million investment in the stock during the quarter. The other funds with brand new MGTA positions are Oleg Nodelman’s EcoR1 Capital, Guy Levy’s Soleus Capital, and Bhagwan Jay Rao’s Integral Health Asset Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Magenta Therapeutics, Inc. (NASDAQ:MGTA) but similarly valued. These stocks are Dynex Capital Inc (NYSE:DX), Rayonier Advanced Materials Inc (NYSE:RYAM), Titan Machinery Inc. (NASDAQ:TITN), Oportun Financial Corporation (NASDAQ:OPRT), International Money Express, Inc. (NASDAQ:IMXI), Tecnoglass Inc. (NASDAQ:TGLS), and RCI Hospitality Holdings, Inc. (NASDAQ:RICK). This group of stocks’ market valuations resemble MGTA’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DX | 10 | 23691 | 0 |
| RYAM | 16 | 60987 | 3 |
| TITN | 12 | 41243 | -1 |
| OPRT | 4 | 14505 | -1 |
| IMXI | 18 | 133919 | 2 |
| TGLS | 10 | 30288 | 4 |
| RICK | 10 | 108176 | 3 |
| Average | 11.4 | 58973 | 1.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.4 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $123 million in MGTA’s case. International Money Express, Inc. (NASDAQ:IMXI) is the most popular stock in this table. On the other hand Oportun Financial Corporation (NASDAQ:OPRT) is the least popular one with only 4 bullish hedge fund positions. Magenta Therapeutics, Inc. (NASDAQ:MGTA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MGTA is 75.6. 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 28.5% in 2021 through July 23rd and beat the market again by 10.1 percentage points. Unfortunately MGTA wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on MGTA were disappointed as the stock returned -37.5% since the end of March (through 7/23) 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.
