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 KBR, Inc. (NYSE:KBR) and determine whether hedge funds had an edge regarding this stock.
KBR, Inc. (NYSE:KBR) has seen a decrease in hedge fund sentiment in recent months. KBR, Inc. (NYSE:KBR) was in 31 hedge funds’ portfolios at the end of September. The all time high for this statistic is 38. Our calculations also showed that KBR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so 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. With all of this in mind we’re going to analyze the latest hedge fund action encompassing KBR, Inc. (NYSE:KBR).
Michael Gelband of ExodusPoint Capital
Do Hedge Funds Think KBR Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from the second quarter of 2021. Below, you can check out the change in hedge fund sentiment towards KBR over the last 25 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to Insider Monkey’s hedge fund database, Ross Turner’s Pelham Capital has the most valuable position in KBR, Inc. (NYSE:KBR), worth close to $169.7 million, corresponding to 9.4% of its total 13F portfolio. On Pelham Capital’s heels is Impactive Capital, led by Lauren Taylor Wolfe, holding a $155.6 million position; 12.2% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that hold long positions consist of Aaron Cowen’s Suvretta Capital Management, Matt Sirovich and Jeremy Mindich’s Scopia Capital and David S. Winter and David J. Millstone’s 40 North Management. In terms of the portfolio weights assigned to each position Impactive Capital allocated the biggest weight to KBR, Inc. (NYSE:KBR), around 12.21% of its 13F portfolio. Pelham Capital is also relatively very bullish on the stock, earmarking 9.41 percent of its 13F equity portfolio to KBR.
Judging by the fact that KBR, Inc. (NYSE:KBR) has witnessed falling interest from hedge fund managers, it’s easy to see that there lies a certain “tier” of hedge funds who sold off their entire stakes in the third quarter. Intriguingly, Claus Moller’s P2 Capital Partners dumped the largest position of all the hedgies followed by Insider Monkey, worth close to $18.3 million in stock. Renaissance Technologies, also dropped its stock, about $17.8 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 5 funds in the third quarter.
Let’s also examine hedge fund activity in other stocks similar to KBR, Inc. (NYSE:KBR). These stocks are Douglas Emmett, Inc. (NYSE:DEI), Cousins Properties Incorporated (NYSE:CUZ), Owl Rock Capital Corporation (NYSE:ORCC), Innovative Industrial Properties, Inc. (NYSE:IIPR), BlackBerry Limited (NYSE:BB), Eagle Materials, Inc. (NYSE:EXP), and Spirit Realty Capital Inc (NYSE:SRC). This group of stocks’ market valuations are closest to KBR’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DEI | 13 | 291446 | -6 |
| CUZ | 14 | 170754 | -3 |
| ORCC | 14 | 180844 | -1 |
| IIPR | 12 | 265784 | -3 |
| BB | 20 | 569356 | 0 |
| EXP | 36 | 187715 | 0 |
| SRC | 23 | 384118 | 4 |
| Average | 18.9 | 292860 | -1.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.9 hedge funds with bullish positions and the average amount invested in these stocks was $293 million. That figure was $1056 million in KBR’s case. Eagle Materials, Inc. (NYSE:EXP) is the most popular stock in this table. On the other hand Innovative Industrial Properties, Inc. (NYSE:IIPR) is the least popular one with only 12 bullish hedge fund positions. KBR, Inc. (NYSE:KBR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for KBR is 64.1. 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. 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 29.6% in 2021 and still beat the market by 3.6 percentage points. Hedge funds were also right about betting on KBR as the stock returned 10.4% since the end of Q3 (through 1/31) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
