Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ complex research processes to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space. Nevertheless, it is also possible to find underpriced large-cap stocks by following the hedge funds’ moves. In this article, we look at what those funds think of Applied Materials, Inc. (NASDAQ:AMAT) based on that data.
Applied Materials, Inc. (NASDAQ:AMAT) was in 50 hedge funds’ portfolios at the end of the third quarter of 2019. AMAT has seen an increase in activity from the world’s largest hedge funds in recent months. There were 44 hedge funds in our database with AMAT positions at the end of the previous quarter. Our calculations also showed that AMAT isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Cliff Asness of AQR Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind let’s take a gander at the recent hedge fund action regarding Applied Materials, Inc. (NASDAQ:AMAT).
What does smart money think about Applied Materials, Inc. (NASDAQ:AMAT)?
At Q3’s end, a total of 50 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in AMAT over the last 17 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
The largest stake in Applied Materials, Inc. (NASDAQ:AMAT) was held by AQR Capital Management, which reported holding $468.1 million worth of stock at the end of September. It was followed by Generation Investment Management with a $229.6 million position. Other investors bullish on the company included Matrix Capital Management, Lansdowne Partners, and Millennium Management. In terms of the portfolio weights assigned to each position Abrams Bison Investments allocated the biggest weight to Applied Materials, Inc. (NASDAQ:AMAT), around 13.85% of its 13F portfolio. Praesidium Investment Management is also relatively very bullish on the stock, earmarking 5.47 percent of its 13F equity portfolio to AMAT.
Now, some big names have been driving this bullishness. Hitchwood Capital Management, managed by James Crichton, initiated the largest position in Applied Materials, Inc. (NASDAQ:AMAT). Hitchwood Capital Management had $54.9 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $49.2 million investment in the stock during the quarter. The other funds with brand new AMAT positions are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Dmitry Balyasny’s Balyasny Asset Management, and Leon Shaulov’s Maplelane Capital.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Applied Materials, Inc. (NASDAQ:AMAT) but similarly valued. We will take a look at Relx PLC (NYSE:RELX), Phillips 66 (NYSE:PSX), Honda Motor Co Ltd (NYSE:HMC), and Edwards Lifesciences Corporation (NYSE:EW). All of these stocks’ market caps resemble AMAT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RELX | 6 | 105678 | 3 |
| PSX | 36 | 1315132 | -3 |
| HMC | 10 | 129921 | 3 |
| EW | 34 | 1384665 | 1 |
| Average | 21.5 | 733849 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $734 million. That figure was $2356 million in AMAT’s case. Phillips 66 (NYSE:PSX) is the most popular stock in this table. On the other hand Relx PLC (NYSE:RELX) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Applied Materials, Inc. (NASDAQ:AMAT) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on AMAT as the stock returned 90% so far in 2019 (through 12/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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.
