In this article we will analyze whether Magnolia Oil & Gas Corporation (NASDAQ:MGY) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.
Hedge fund interest in Magnolia Oil & Gas Corporation (NASDAQ:MGY) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that MGY isn’t 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 LendingTree, Inc (NASDAQ:TREE), Arconic Corporation (NYSE:ARNC), and Corcept Therapeutics Incorporated (NASDAQ:CORT) to gather more data points.
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.
Peter Rathjens of Arrowstreet Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery 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. With all of this in mind let’s take a gander at the new hedge fund action encompassing Magnolia Oil & Gas Corporation (NASDAQ:MGY).
Do Hedge Funds Think MGY Is A Good Stock To Buy Now?
Heading into the second quarter of 2021, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the fourth quarter of 2020. The graph below displays the number of hedge funds with bullish position in MGY over the last 23 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.
Among these funds, Two Sigma Advisors held the most valuable stake in Magnolia Oil & Gas Corporation (NASDAQ:MGY), which was worth $35.2 million at the end of the fourth quarter. On the second spot was Omega Advisors which amassed $22.9 million worth of shares. Arrowstreet Capital, D E Shaw, and SIR 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 Covalis Capital allocated the biggest weight to Magnolia Oil & Gas Corporation (NASDAQ:MGY), around 1.48% of its 13F portfolio. SIR Capital Management is also relatively very bullish on the stock, designating 1.45 percent of its 13F equity portfolio to MGY.
Seeing as Magnolia Oil & Gas Corporation (NASDAQ:MGY) has experienced falling interest from the aggregate hedge fund industry, it’s safe to say that there is a sect of hedge funds that slashed their positions entirely heading into Q2. Interestingly, Todd J. Kantor’s Encompass Capital Advisors cut the largest stake of the “upper crust” of funds monitored by Insider Monkey, totaling about $34.2 million in stock. Leonard A. Potter’s fund, Wildcat Capital Management, also dropped its stock, about $1.3 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Magnolia Oil & Gas Corporation (NASDAQ:MGY) but similarly valued. These stocks are LendingTree, Inc (NASDAQ:TREE), Arconic Corporation (NYSE:ARNC), Corcept Therapeutics Incorporated (NASDAQ:CORT), Fulgent Genetics, Inc. (NASDAQ:FLGT), Nelnet, Inc. (NYSE:NNI), American States Water Co (NYSE:AWR), and Kontoor Brands, Inc. (NASDAQ:KTB). This group of stocks’ market caps match MGY’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TREE | 25 | 568101 | -1 |
| ARNC | 26 | 718006 | 2 |
| CORT | 15 | 269878 | -5 |
| FLGT | 18 | 98684 | 6 |
| NNI | 11 | 171625 | -3 |
| AWR | 14 | 38906 | -4 |
| KTB | 16 | 110576 | 0 |
| Average | 17.9 | 282254 | -0.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.9 hedge funds with bullish positions and the average amount invested in these stocks was $282 million. That figure was $152 million in MGY’s case. Arconic Corporation (NYSE:ARNC) is the most popular stock in this table. On the other hand Nelnet, Inc. (NYSE:NNI) is the least popular one with only 11 bullish hedge fund positions. Magnolia Oil & Gas Corporation (NASDAQ:MGY) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MGY is 55.4. 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. 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 23.8% in 2021 through July 16th and still beat the market by 7.7 percentage points. Hedge funds were also right about betting on MGY as the stock returned 20% since the end of Q1 (through 7/16) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Follow Magnolia Oil & Gas Corp (NYSE:MGY)
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Disclosure: None. This article was originally published at Insider Monkey.
