How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Kansas City Southern (NYSE:KSU).
Is KSU stock a buy or sell? Kansas City Southern (NYSE:KSU) was in 49 hedge funds’ portfolios at the end of December. The all time high for this statistic is 53. KSU investors should pay attention to a decrease in hedge fund sentiment recently. There were 53 hedge funds in our database with KSU holdings at the end of September. Our calculations also showed that KSU isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Minhua Zhang of Weld Capital Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. Recently Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 best biotech stocks to invest in to pick the next stock 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 (or at the end of this article).With all of this in mind let’s view the latest hedge fund action regarding Kansas City Southern (NYSE:KSU).
Do Hedge Funds Think KSU Is A Good Stock To Buy Now?
At the end of December, a total of 49 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from one quarter earlier. On the other hand, there were a total of 40 hedge funds with a bullish position in KSU 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 Kansas City Southern (NYSE:KSU) was held by Citadel Investment Group, which reported holding $183.5 million worth of stock at the end of December. It was followed by Chilton Investment Company with a $138.7 million position. Other investors bullish on the company included Fisher Asset Management, Farallon Capital, and Millennium Management. In terms of the portfolio weights assigned to each position Mountain Road Advisors allocated the biggest weight to Kansas City Southern (NYSE:KSU), around 6.53% of its 13F portfolio. Marlowe Partners is also relatively very bullish on the stock, designating 4.74 percent of its 13F equity portfolio to KSU.
Because Kansas City Southern (NYSE:KSU) has witnessed bearish sentiment from hedge fund managers, logic holds that there lies a certain “tier” of hedge funds who were dropping their positions entirely heading into Q1. Intriguingly, Robert Bishop’s Impala Asset Management dropped the biggest position of the 750 funds watched by Insider Monkey, comprising an estimated $73 million in stock. Carl Tiedemann and Michael Tiedemann’s fund, TIG Advisors, also sold off its stock, about $42.9 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 4 funds heading into Q1.
Let’s check out hedge fund activity in other stocks similar to Kansas City Southern (NYSE:KSU). These stocks are Fortis Inc. (NYSE:FTS), Incyte Corporation (NASDAQ:INCY), Vipshop Holdings Limited (NYSE:VIPS), ORIX Corporation (NYSE:IX), Ingersoll Rand Inc. (NYSE:IR), Qorvo Inc (NASDAQ:QRVO), and TransUnion (NYSE:TRU). This group of stocks’ market caps resemble KSU’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FTS | 9 | 206819 | 1 |
| INCY | 37 | 3891495 | 2 |
| VIPS | 27 | 524692 | 3 |
| IX | 3 | 4453 | -1 |
| IR | 34 | 939520 | 8 |
| QRVO | 51 | 2122157 | 0 |
| TRU | 41 | 2025227 | -6 |
| Average | 28.9 | 1387766 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.9 hedge funds with bullish positions and the average amount invested in these stocks was $1388 million. That figure was $1021 million in KSU’s case. Qorvo Inc (NASDAQ:QRVO) is the most popular stock in this table. On the other hand ORIX Corporation (NYSE:IX) is the least popular one with only 3 bullish hedge fund positions. Kansas City Southern (NYSE:KSU) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for KSU is 76.7. 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. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and still beat the market by 0.8 percentage points. Hedge funds were also right about betting on KSU as the stock returned 10.1% since the end of Q4 (through 3/19) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
