Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the fourth quarter, many investors lost money due to unpredictable events such as the sudden increase in long-term interest rates and unintended consequences of the trade war with China. Nevertheless, many of the stocks that tanked in the fourth quarter still sport strong fundamentals and their decline was more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS) changed recently.
Is Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS) the right pick for your portfolio? Money managers are getting less bullish. The number of long hedge fund bets fell by 1 lately. Our calculations also showed that KTOS isn’t among the 30 most popular stocks among hedge funds. KTOS was in 12 hedge funds’ portfolios at the end of December. There were 13 hedge funds in our database with KTOS positions at the end of the previous quarter.
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 market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
We’re going to take a glance at the recent hedge fund action regarding Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS).
What does the smart money think about Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS)?
Heading into the first quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the previous quarter. On the other hand, there were a total of 14 hedge funds with a bullish position in KTOS a year ago. With hedge funds’ sentiment swirling, there exists a few key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
Among these funds, Daruma Asset Management held the most valuable stake in Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS), which was worth $40.3 million at the end of the fourth quarter. On the second spot was Royce & Associates which amassed $22.5 million worth of shares. Moreover, Driehaus Capital, Impala Asset Management, and D E Shaw were also bullish on Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS), allocating a large percentage of their portfolios to this stock.
Seeing as Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS) has witnessed a decline in interest from the aggregate hedge fund industry, it’s easy to see that there was a specific group of fund managers that decided to sell off their entire stakes last quarter. It’s worth mentioning that Ken Grossman and Glen Schneider’s SG Capital Management sold off the largest stake of the “upper crust” of funds followed by Insider Monkey, valued at an estimated $14.4 million in stock. Matthew Hulsizer’s fund, PEAK6 Capital Management, also sold off its stock, about $1.2 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 1 funds last quarter.
Let’s check out hedge fund activity in other stocks similar to Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS). We will take a look at Benefitfocus Inc (NASDAQ:BNFT), The Children’s Place Inc. (NASDAQ:PLCE), SPS Commerce, Inc. (NASDAQ:SPSC), and SSR Mining Inc. (NASDAQ:SSRM). All of these stocks’ market caps match KTOS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BNFT | 15 | 68806 | 3 |
| PLCE | 19 | 169423 | -4 |
| SPSC | 19 | 147963 | 0 |
| SSRM | 12 | 110639 | 4 |
| Average | 16.25 | 124208 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $124 million. That figure was $99 million in KTOS’s case. The Children’s Place Inc. (NASDAQ:PLCE) is the most popular stock in this table. On the other hand SSR Mining Inc. (NASDAQ:SSRM) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS) is even less popular than SSRM. Hedge funds dodged a bullet by taking a bearish stance towards KTOS. Our calculations showed that the top 15 most popular hedge fund stocks returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately KTOS wasn’t nearly as popular as these 15 stock (hedge fund sentiment was very bearish); KTOS investors were disappointed as the stock returned 3.8% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.
