Here is What Hedge Funds Think About Kratos Defense & Security Solutions, Inc (KTOS)

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS).

Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS) investors should pay attention to a decrease in enthusiasm from smart money lately. Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS) was in 16 hedge funds’ portfolios at the end of March. The all time high for this statistic is 22. There were 18 hedge funds in our database with KTOS positions at the end of the fourth quarter. Our calculations also showed that KTOS isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

In the eyes of most stock holders, hedge funds are perceived as slow, outdated financial vehicles of years past. While there are more than 8000 funds in operation at present, We hone in on the moguls of this group, approximately 850 funds. It is estimated that this group of investors shepherd the majority of the smart money’s total asset base, and by monitoring their highest performing equity investments, Insider Monkey has discovered a few investment strategies that have historically outstripped the market. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Also, our monthly newsletter’s portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

Cathie Wood of ARK Investment Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 homepage. Keeping this in mind we’re going to take a peek at the new hedge fund action regarding Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS).

Do Hedge Funds Think KTOS Is A Good Stock To Buy Now?

At Q1’s end, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the fourth quarter of 2020. On the other hand, there were a total of 18 hedge funds with a bullish position in KTOS a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS) was held by ARK Investment Management, which reported holding $143 million worth of stock at the end of December. It was followed by Washington Harbour Partners with a $13 million position. Other investors bullish on the company included Osterweis Capital Management, Marshall Wace LLP, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Washington Harbour Partners allocated the biggest weight to Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS), around 2.18% of its 13F portfolio. Sandbar Asset Management is also relatively very bullish on the stock, dishing out 0.7 percent of its 13F equity portfolio to KTOS.

Judging by the fact that Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS) has witnessed declining sentiment from the smart money, logic holds that there is a sect of fund managers that decided to sell off their entire stakes in the first quarter. It’s worth mentioning that Richard Driehaus’s Driehaus Capital dumped the largest position of the “upper crust” of funds monitored by Insider Monkey, valued at about $5.8 million in stock, and Mark Hart III’s Corriente Advisors was right behind this move, as the fund dropped about $5.5 million worth. These moves are interesting, as aggregate hedge fund interest fell by 2 funds in the first quarter.

Let’s check out hedge fund activity in other stocks similar to Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS). These stocks are Revolution Medicines, Inc. (NASDAQ:RVMD), Mercury General Corporation (NYSE:MCY), Proto Labs Inc (NYSE:PRLB), Atkore Inc. (NYSE:ATKR), Insight Enterprises, Inc. (NASDAQ:NSIT), PagerDuty, Inc. (NYSE:PD), and Kennametal Inc. (NYSE:KMT). This group of stocks’ market valuations are closest to KTOS’s market valuation.

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As you can see these stocks had an average of 19.9 hedge funds with bullish positions and the average amount invested in these stocks was $392 million. That figure was $194 million in KTOS’s case. Revolution Medicines, Inc. (NASDAQ:RVMD) is the most popular stock in this table. On the other hand Kennametal Inc. (NYSE:KMT) is the least popular one with only 13 bullish hedge fund positions. Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for KTOS is 36.4. 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 negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 28.5% in 2021 through July 23rd and surpassed the market again by 10.1 percentage points. Unfortunately KTOS wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); KTOS investors were disappointed as the stock returned -1.6% since the end of March (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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