We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. That’s a big deal.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS) has seen an increase in enthusiasm from smart money recently. Our calculations also showed that KTOS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
To the average investor there are plenty of metrics shareholders put to use to grade publicly traded companies. Some of the less known metrics are hedge fund and insider trading indicators. Our experts have shown that, historically, those who follow the top picks of the elite money managers can trounce their index-focused peers by a healthy margin (see the details here).
Blair Levinsky of Waratah Capital Advisors
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s review the key hedge fund action surrounding Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS).
How are hedge funds trading Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS)?
At Q3’s end, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from the previous quarter. The graph below displays the number of hedge funds with bullish position in KTOS over the last 17 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Columbus Circle Investors was the largest shareholder of Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS), with a stake worth $17.2 million reported as of the end of September. Trailing Columbus Circle Investors was Driehaus Capital, which amassed a stake valued at $11 million. Waratah Capital Advisors, Impala Asset Management, and Royce & Associates were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Diametric Capital allocated the biggest weight to Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS), around 0.97% of its 13F portfolio. Waratah Capital Advisors is also relatively very bullish on the stock, earmarking 0.8 percent of its 13F equity portfolio to KTOS.
As one would reasonably expect, key hedge funds were breaking ground themselves. Waratah Capital Advisors, managed by Brad Dunkley and Blair Levinsky, established the largest position in Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS). Waratah Capital Advisors had $8 million invested in the company at the end of the quarter. John Osterweis’s Osterweis Capital Management also made a $4.1 million investment in the stock during the quarter. The following funds were also among the new KTOS investors: Ken Griffin’s Citadel Investment Group, Brandon Haley’s Holocene Advisors, and Matthew Hulsizer’s PEAK6 Capital Management.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS) but similarly valued. These stocks are Hertz Global Holdings, Inc. (NYSE:HTZ), Norbord Inc. (NYSE:OSB), Mack Cali Realty Corp (NYSE:CLI), and International Speedway Corporation (NASDAQ:ISCA). This group of stocks’ market values match KTOS’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HTZ | 25 | 1158188 | -5 |
| OSB | 6 | 15366 | 0 |
| CLI | 13 | 139793 | 0 |
| ISCA | 15 | 217768 | 1 |
| Average | 14.75 | 382779 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $383 million. That figure was $77 million in KTOS’s case. Hertz Global Holdings, Inc. (NYSE:HTZ) is the most popular stock in this table. On the other hand Norbord Inc. (NYSE:OSB) is the least popular one with only 6 bullish hedge fund positions. Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately KTOS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on KTOS were disappointed as the stock returned -2.9% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 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.
