We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about KBR, Inc. (NYSE:KBR).
KBR, Inc. (NYSE:KBR) investors should pay attention to a decrease in enthusiasm from smart money of late. Our calculations also showed that KBR isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 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 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 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.
Aaron Cowen of Suvretta Capital Management
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s analyze the recent hedge fund action surrounding KBR, Inc. (NYSE:KBR).
What have hedge funds been doing with KBR, Inc. (NYSE:KBR)?
Heading into the first quarter of 2020, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards KBR over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Suvretta Capital Management, managed by Aaron Cowen, holds the biggest position in KBR, Inc. (NYSE:KBR). Suvretta Capital Management has a $96.5 million position in the stock, comprising 2.2% of its 13F portfolio. Sitting at the No. 2 spot is Joe Huber of Huber Capital Management, with a $81 million position; 10.6% of its 13F portfolio is allocated to the stock. Other members of the smart money that are bullish include Israel Englander’s Millennium Management, Richard S. Pzena’s Pzena Investment Management and Chuck Royce’s Royce & Associates. In terms of the portfolio weights assigned to each position Huber Capital Management allocated the biggest weight to KBR, Inc. (NYSE:KBR), around 10.61% of its 13F portfolio. Hudson Way Capital Management is also relatively very bullish on the stock, designating 10.41 percent of its 13F equity portfolio to KBR.
Since KBR, Inc. (NYSE:KBR) has witnessed a decline in interest from hedge fund managers, it’s safe to say that there is a sect of money managers that elected to cut their entire stakes last quarter. It’s worth mentioning that Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital dropped the largest stake of all the hedgies tracked by Insider Monkey, totaling close to $5.4 million in stock. Peter Muller’s fund, PDT Partners, also said goodbye to its stock, about $2 million worth. These transactions are interesting, as total hedge fund interest dropped by 2 funds last quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as KBR, Inc. (NYSE:KBR) but similarly valued. These stocks are Sabra Health Care REIT Inc (NASDAQ:SBRA), Philippine Long Distance Telephone (NYSE:PHI), Ternium S.A. (NYSE:TX), and New Jersey Resources Corp (NYSE:NJR). This group of stocks’ market valuations resemble KBR’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SBRA | 27 | 307485 | 15 |
| PHI | 7 | 75067 | 2 |
| TX | 11 | 124170 | 1 |
| NJR | 20 | 118866 | 4 |
| Average | 16.25 | 156397 | 5.5 |
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 $156 million. That figure was $515 million in KBR’s case. Sabra Health Care REIT Inc (NASDAQ:SBRA) is the most popular stock in this table. On the other hand Philippine Long Distance Telephone (NYSE:PHI) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks KBR, Inc. (NYSE:KBR) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th and still beat the market by 5.5 percentage points. Unfortunately KBR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on KBR were disappointed as the stock returned -35.2% during the first two and a half months of 2020 (through March 25th) 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 most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
