Hedge Funds Are Betting On Madrigal Pharmaceuticals, Inc. (MDGL)

·6 min read

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 Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL).

Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL) was in 20 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 26. MDGL shareholders have witnessed an increase in hedge fund sentiment recently. There were 17 hedge funds in our database with MDGL positions at the end of the first quarter. Our calculations also showed that MDGL 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.

Kris Jenner - Rock Springs Capital
Kris Jenner - Rock Springs Capital

Kris Jenner of Rock Springs Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, plant based food market is expected to explode 100-fold by 2050, so we are checking out this under-the-radar stock. We go through lists like the 10 best growth stocks to buy 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 we're going to take a look at the fresh hedge fund action regarding Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL).

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

At second quarter's end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from the previous quarter. By comparison, 15 hedge funds held shares or bullish call options in MDGL a year ago. With hedge funds' capital changing hands, there exists a select group of key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

Is MDGL A Good Stock To Buy?
Is MDGL A Good Stock To Buy?

Of the funds tracked by Insider Monkey, Baker Bros. Advisors, managed by Julian Baker and Felix Baker, holds the most valuable position in Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL). Baker Bros. Advisors has a $146 million position in the stock, comprising 0.6% of its 13F portfolio. The second largest stake is held by Behzad Aghazadeh of Avoro Capital Advisors (venBio Select Advisor), with a $138.8 million position; 2.4% of its 13F portfolio is allocated to the company. Some other professional money managers with similar optimism comprise Steven Boyd's Armistice Capital, Kris Jenner, Gordon Bussard, Graham McPhail's Rock Springs Capital Management and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Avoro Capital Advisors (venBio Select Advisor) allocated the biggest weight to Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL), around 2.41% of its 13F portfolio. Tao Capital is also relatively very bullish on the stock, dishing out 1.15 percent of its 13F equity portfolio to MDGL.

As one would reasonably expect, key hedge funds were leading the bulls' herd. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, created the largest position in Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL). Marshall Wace LLP had $9.6 million invested in the company at the end of the quarter. Greg Eisner's Engineers Gate Manager also made a $0.6 million investment in the stock during the quarter. The other funds with brand new MDGL positions are Devesh Gandhi's SilverArc Capital and Jinghua Yan's TwinBeech Capital.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL) but similarly valued. These stocks are MacroGenics Inc (NASDAQ:MGNX), Sixth Street Specialty Lending Inc (NYSE:TSLX), Northwest Natural Holding Company (NYSE:NWN), Harmony Biosciences Holdings, Inc. (NASDAQ:HRMY), AppHarvest, Inc. (NASDAQ:APPH), Zymeworks Inc. (NYSE:ZYME), and Enerpac Tool Group Corp. (NYSE:EPAC). All of these stocks' market caps are similar to MDGL's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MGNX,24,437546,-6 TSLX,10,93984,1 NWN,11,14194,1 HRMY,15,173932,5 APPH,15,273043,-6 ZYME,19,459937,-8 EPAC,7,117733,0 Average,14.4,224338,-1.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.4 hedge funds with bullish positions and the average amount invested in these stocks was $224 million. That figure was $438 million in MDGL's case. MacroGenics Inc (NASDAQ:MGNX) is the most popular stock in this table. On the other hand Enerpac Tool Group Corp. (NYSE:EPAC) is the least popular one with only 7 bullish hedge fund positions. Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MDGL is 69.3. 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 24% in 2021 through October 22nd and beat the market again by 1.6 percentage points. Unfortunately MDGL wasn't nearly as popular as these 5 stocks and hedge funds that were betting on MDGL were disappointed as the stock returned -19.6% since the end of June (through 10/22) 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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