How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Micron Technology, Inc. (NASDAQ:MU).
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.
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David Tepper of Appaloosa Management LP
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Do Hedge Funds Think MU Is A Good Stock To Buy Now?
At the end of March, 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. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
More specifically, Arrowstreet Capital was the largest shareholder of Micron Technology, Inc. (NASDAQ:MU), with a stake worth $1297.4 million reported as of the end of March. Trailing Arrowstreet Capital was Appaloosa Management LP, which amassed a stake valued at $641.7 million. D E Shaw, Citadel Investment Group, and Baupost Group 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 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, earmarking 14.07 percent of its 13F equity portfolio to MU.
Judging by the fact that Micron Technology, Inc. (NASDAQ:MU) has witnessed a decline in interest from the aggregate hedge fund industry, it's easy to see that there were a few fund managers who sold off their entire stakes in the first quarter. It's worth mentioning that Renaissance Technologies cut the biggest stake of all the hedgies watched by Insider Monkey, totaling close to $252.2 million in stock. Andreas Halvorsen's fund, Viking Global, also cut its stock, about $206.9 million worth. These bearish behaviors 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 Micron Technology, Inc. (NASDAQ:MU) but similarly valued. 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). All of these stocks' market caps are similar to MU's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CVS,62,1315655,6 NOW,98,6127672,2 DEO,22,724467,-1 BKNG,103,6810305,-5 AMD,62,3703315,-12 MO,38,1109493,1 ZM,54,5672277,-5 Average,62.7,3637598,-2 [/table]
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 17.2% in 2021 through June 11th and beat the market again by 3.3 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 -10.1% since the end of March (through 6/11) 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.