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

With the second-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the third quarter of 2021. One of these stocks was Micron Technology, Inc. (NASDAQ:MU).

Micron Technology, Inc. (NASDAQ:MU) shareholders have witnessed a decrease in activity from the world’s largest hedge funds 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 isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Seth Klarman of Baupost Group

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, the demand for helium is soaring and there is a helium supply shortage, so we are checking out stock pitches like this emerging helium 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 let’s take a glance at the fresh hedge fund action regarding Micron Technology, Inc. (NASDAQ:MU).

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

At the end of June, a total of 87 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -13% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in MU over the last 24 quarters. So, let’s check 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 $1262.8 million worth of stock at the end of June. It was followed by Baupost Group with a $608.7 million position. Other investors bullish on the company included Citadel Investment Group, Appaloosa Management LP, and Matrix Capital Management. 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, designating 14.26 percent of its 13F equity portfolio to MU.

Because Micron Technology, Inc. (NASDAQ:MU) has experienced a decline in interest from the entirety of the hedge funds we track, logic holds that there were a few hedgies that slashed their full holdings heading into Q3. Interestingly, Gabriel Plotkin’s Melvin Capital Management sold off the largest position of the 750 funds monitored by Insider Monkey, totaling close to $110.3 million in stock. Richard Driehaus’s fund, Driehaus Capital, also said goodbye to its stock, about $75.5 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 13 funds heading into Q3.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Micron Technology, Inc. (NASDAQ:MU) but similarly valued. These stocks are 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). All of these 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 26.3% in 2021 through October 29th and beat the market again by 2.3 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 -18.6% since the end of June (through 10/29) 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.