Applied Materials, Inc. (AMAT): Are Hedge Funds Right About This Stock?

In this article we will take a look at whether hedge funds think Applied Materials, Inc. (NASDAQ:AMAT) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Applied Materials, Inc. (NASDAQ:AMAT) has seen an increase in hedge fund sentiment in recent months. Applied Materials, Inc. (NASDAQ:AMAT) was in 58 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 72. Our calculations also showed that AMAT isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

William Von Mueffling of Cantillon Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Keeping this in mind let’s take a look at the new hedge fund action regarding Applied Materials, Inc. (NASDAQ:AMAT).

How have hedgies been trading Applied Materials, Inc. (NASDAQ:AMAT)?

At second quarter’s end, a total of 58 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from the previous quarter. By comparison, 44 hedge funds held shares or bullish call options in AMAT a year ago. 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 Applied Materials, Inc. (NASDAQ:AMAT) was held by Matrix Capital Management, which reported holding $297 million worth of stock at the end of September. It was followed by AQR Capital Management with a $285.9 million position. Other investors bullish on the company included Generation Investment Management, Cantillon Capital Management, and Lansdowne Partners. In terms of the portfolio weights assigned to each position Lansdowne Partners allocated the biggest weight to Applied Materials, Inc. (NASDAQ:AMAT), around 9.05% of its 13F portfolio. Castle Hook Partners is also relatively very bullish on the stock, designating 5.79 percent of its 13F equity portfolio to AMAT.

As one would reasonably expect, specific money managers have jumped into Applied Materials, Inc. (NASDAQ:AMAT) headfirst. Nishkama Capital, managed by Ravee Mehta, created the largest position in Applied Materials, Inc. (NASDAQ:AMAT). Nishkama Capital had $9.1 million invested in the company at the end of the quarter. Peter Muller’s PDT Partners also made a $8.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Anand Parekh’s Alyeska Investment Group, Paul Holland and Matthew Miller’s Glaxis Capital Management, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners.

Let’s go over hedge fund activity in other stocks similar to Applied Materials, Inc. (NASDAQ:AMAT). These stocks are Illinois Tool Works Inc. (NYSE:ITW), America Movil SAB de CV (NYSE:AMX), The Southern Company (NYSE:SO), Illumina, Inc. (NASDAQ:ILMN), Marsh & McLennan Companies, Inc. (NYSE:MMC), Uber Technologies, Inc. (NYSE:UBER), and Petroleo Brasileiro S.A. – Petrobras (NYSE:PBR). This group of stocks’ market valuations resemble AMAT’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.9 hedge funds with bullish positions and the average amount invested in these stocks was $1409 million. That figure was $2462 million in AMAT’s case. Uber Technologies, Inc. (NYSE:UBER) is the most popular stock in this table. On the other hand America Movil SAB de CV (NYSE:AMX) is the least popular one with only 11 bullish hedge fund positions. Applied Materials, Inc. (NASDAQ:AMAT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AMAT is 59.5. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 29.2% in 2020 through October 16th and beat the market by 19.7 percentage points. Unfortunately AMAT wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on AMAT were disappointed as the stock returned 4.6% since the end of June (through 10/16) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

Disclosure: None. This article was originally published at Insider Monkey.