Is Applied Materials, Inc. (AMAT) A Good Stock To Buy?

We at Insider Monkey have gone over 873 13F filings that hedge funds and prominent investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th. In this article, we look at what those funds think of Applied Materials, Inc. (NASDAQ:AMAT) based on that data.

Is AMAT a good stock to buy? Applied Materials, Inc. (NASDAQ:AMAT) investors should pay attention to a decrease in hedge fund interest of late. Applied Materials, Inc. (NASDAQ:AMAT) was in 73 hedge funds’ portfolios at the end of June. The all time high for this statistic is 78. There were 78 hedge funds in our database with AMAT holdings at the end of March. Our calculations also showed that AMAT isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 79 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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. With all of this in mind let’s analyze the latest hedge fund action encompassing Applied Materials, Inc. (NASDAQ:AMAT).

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

At second quarter’s end, a total of 73 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from one quarter earlier. On the other hand, there were a total of 58 hedge funds with a bullish position in AMAT a year ago. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

Among these funds, Generation Investment Management held the most valuable stake in Applied Materials, Inc. (NASDAQ:AMAT), which was worth $630.7 million at the end of the second quarter. On the second spot was Cantillon Capital Management which amassed $531.4 million worth of shares. Matrix Capital Management, Fisher Asset Management, and Polar Capital 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 Glaxis Capital Management allocated the biggest weight to Applied Materials, Inc. (NASDAQ:AMAT), around 12.98% of its 13F portfolio. Breakline Capital is also relatively very bullish on the stock, dishing out 10.4 percent of its 13F equity portfolio to AMAT.

Judging by the fact that Applied Materials, Inc. (NASDAQ:AMAT) has witnessed a decline in interest from the aggregate hedge fund industry, it’s safe to say that there is a sect of hedgies that decided to sell off their full holdings last quarter. It’s worth mentioning that Benjamin A. Smith’s Laurion Capital Management cut the largest position of the 750 funds followed by Insider Monkey, worth an estimated $219.4 million in stock. Robert Boucai’s fund, Newbrook Capital Advisors, also cut its stock, about $94.9 million worth. These moves are interesting, as total hedge fund interest was cut by 5 funds last quarter.

Let’s go over 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 Raytheon Technologies Corp (NYSE:RTX), Goldman Sachs Group, Inc. (NYSE:GS), Toronto-Dominion Bank (NYSE:TD), JD.Com Inc (NASDAQ:JD), American Tower Corporation (NYSE:AMT), Sony Group Corp (NYSE:SONY), and Target Corporation (NYSE:TGT). This group of stocks’ market valuations resemble AMAT’s market valuation.

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As you can see these stocks had an average of 49.7 hedge funds with bullish positions and the average amount invested in these stocks was $4184 million. That figure was $4594 million in AMAT’s case. JD.Com Inc (NASDAQ:JD) is the most popular stock in this table. On the other hand Toronto-Dominion Bank (NYSE:TD) is the least popular one with only 17 bullish hedge fund positions. Applied Materials, Inc. (NASDAQ:AMAT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AMAT is 75.5. 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 positive signal but 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 24.1% in 2021 through September 20th and beat the market again by 6.9 percentage points. Unfortunately AMAT wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on AMAT were disappointed as the stock returned -4.7% since the end of June (through 9/20) 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 many of these stocks already outperformed the market since 2019.

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

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