Were Hedge Funds Right About Micron Technology, Inc. (MU)?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks initially suffered the most but many of these stocks delivered strong returns since November and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment towards Micron Technology, Inc. (NASDAQ:MU) changed recently.

Micron Technology, Inc. (NASDAQ:MU) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 100 hedge funds’ portfolios at the end of March. Our calculations also showed that MU ranked 19th among the 30 most popular stocks among hedge funds (click for Q1 rankings). 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 CVS Health Corporation (NYSE:CVS), ServiceNow Inc (NYSE:NOW), and Diageo plc (NYSE:DEO) to gather more data points.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

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. Keeping this in mind let’s take a glance at the key hedge fund action encompassing Micron Technology, Inc. (NASDAQ:MU).

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

At first quarter’s end, a total of 100 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MU over the last 23 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Micron Technology, Inc. (NASDAQ:MU) was held by Arrowstreet Capital, which reported holding $1297.4 million worth of stock at the end of December. It was followed by Appaloosa Management LP with a $641.7 million position. Other investors bullish on the company included D E Shaw, Citadel Investment Group, and Baupost Group. In terms of the portfolio weights assigned to each position Mohnish Pabrai allocated the biggest weight to Micron Technology, Inc. (NASDAQ:MU), around 52.25% of its 13F portfolio. Noked Capital is also relatively very bullish on the stock, dishing out 14.07 percent of its 13F equity portfolio to MU.

Seeing as Micron Technology, Inc. (NASDAQ:MU) has faced bearish sentiment from the aggregate hedge fund industry, we can see that there lies a certain “tier” of hedgies that slashed their positions entirely last quarter. Interestingly, Renaissance Technologies dumped the largest investment of the 750 funds watched by Insider Monkey, worth close to $252.2 million in stock. Andreas Halvorsen’s fund, Viking Global, also cut its stock, about $206.9 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks similar to Micron Technology, Inc. (NASDAQ:MU). We will take a look at CVS Health Corporation (NYSE:CVS), ServiceNow Inc (NYSE:NOW), Diageo plc (NYSE:DEO), Booking Holdings Inc. (NASDAQ:BKNG), Advanced Micro Devices, Inc. (NASDAQ:AMD), Altria Group Inc (NYSE:MO), and Zoom Video Communications, Inc. (NASDAQ:ZM). This group of stocks’ market caps are similar to MU’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 62.7 hedge funds with bullish positions and the average amount invested in these stocks was $3638 million. That figure was $7622 million in MU’s case. Booking Holdings Inc. (NASDAQ:BKNG) is the most popular stock in this table. On the other hand Diageo plc (NYSE:DEO) is the least popular one with only 22 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 90.1. 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 25.8% in 2021 through August 6th and beat the market again by 6.7 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 -7% since the end of March (through 8/6) 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.

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