We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind let’s see whether KLA Corporation (NASDAQ:KLAC) represents a good buying opportunity at the moment. Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
KLA Corporation (NASDAQ:KLAC) shareholders have witnessed a decrease in hedge fund sentiment in recent months. Our calculations also showed that KLAC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In today’s marketplace there are plenty of metrics investors employ to evaluate stocks. A pair of the best metrics are hedge fund and insider trading moves. Our experts have shown that, historically, those who follow the top picks of the top fund managers can beat the market by a superb amount (see the details here).
Lee Ainslie of Maverick Capital
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a gander at the new hedge fund action regarding KLA Corporation (NASDAQ:KLAC).
How are hedge funds trading KLA Corporation (NASDAQ:KLAC)?
Heading into the first quarter of 2020, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from one quarter earlier. By comparison, 33 hedge funds held shares or bullish call options in KLAC a year ago. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital has the biggest position in KLA Corporation (NASDAQ:KLAC), worth close to $254 million, accounting for 0.6% of its total 13F portfolio. Sitting at the No. 2 spot is Alkeon Capital Management, managed by Panayotis Takis Sparaggis, which holds a $160 million position; 0.6% of its 13F portfolio is allocated to the stock. Remaining hedge funds and institutional investors that are bullish encompass Cliff Asness’s AQR Capital Management, Phill Gross and Robert Atchinson’s Adage Capital Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Totem Point Management allocated the biggest weight to KLA Corporation (NASDAQ:KLAC), around 8.39% of its 13F portfolio. L2 Asset Management is also relatively very bullish on the stock, designating 2.64 percent of its 13F equity portfolio to KLAC.
Due to the fact that KLA Corporation (NASDAQ:KLAC) has witnessed declining sentiment from hedge fund managers, it’s safe to say that there lies a certain “tier” of money managers that slashed their full holdings last quarter. It’s worth mentioning that Brandon Haley’s Holocene Advisors dropped the largest position of the “upper crust” of funds watched by Insider Monkey, worth close to $115.3 million in stock, and Patrick Degorce’s Theleme Partners was right behind this move, as the fund dropped about $96.1 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 2 funds last quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as KLA Corporation (NASDAQ:KLAC) but similarly valued. We will take a look at AutoZone, Inc. (NYSE:AZO), Southwest Airlines Co. (NYSE:LUV), Royal Caribbean Cruises Ltd. (NYSE:RCL), and Cintas Corporation (NASDAQ:CTAS). All of these stocks’ market caps are similar to KLAC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AZO | 40 | 1597360 | 0 |
| LUV | 44 | 3650217 | 4 |
| RCL | 43 | 1386244 | -6 |
| CTAS | 45 | 820938 | 4 |
| Average | 43 | 1863690 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 43 hedge funds with bullish positions and the average amount invested in these stocks was $1864 million. That figure was $700 million in KLAC’s case. Cintas Corporation (NASDAQ:CTAS) is the most popular stock in this table. On the other hand AutoZone, Inc. (NYSE:AZO) is the least popular one with only 40 bullish hedge fund positions. Compared to these stocks KLA Corporation (NASDAQ:KLAC) is even less popular than AZO. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but managed to beat the market by 5.5 percentage points. A small number of hedge funds were also right about betting on KLAC, though not to the same extent, as the stock returned -22.5% during the same time period and outperformed the market as well.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
