Is Knight Transportation (KNX) A Good Stock To Buy?

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. The Standard and Poor’s 500 Index returned 7.6% over the 12-month period ending November 21, while more than 51% of the constituents of the index underperformed the benchmark. Hence, a random stock picking process will most likely lead to disappointment. At the same time, the 30 most favored mid-cap stocks by the best performing hedge funds monitored by Insider Monkey generated a return of 18% over the same time span. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Knight Transportation (NYSE:KNX).

Knight Transportation (NYSE:KNX) investors should be aware of a decrease in hedge fund sentiment in recent months. KNX was in 9 hedge funds’ portfolios at the end of the third quarter of 2016. There were 10 hedge funds in our database with KNX holdings at the end of the second quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as WP Glimcher Inc (NYSE:WPG), Armstrong World Industries, Inc. (NYSE:AWI), and Washington Real Estate Investment Trust (NYSE:WRE) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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What does the smart money think about Knight Transportation (NYSE:KNX)?

At Q3’s end, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a 10% dip from the previous quarter. Below, you can check out the change in hedge fund sentiment towards KNX over the last 5 quarters, which fell sharply in Q4 2015 and has yet to recover. So, let’s review 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, Greg Poole’s Echo Street Capital Management has the biggest position in Knight Transportation (NYSE:KNX), worth close to $12.4 million. Sitting at the No. 2 spot is Folger Hill Asset Management, led by Solomon Kumin, which holds a $7 million position. Remaining professional money managers that are bullish consist of Francois Rochon’s Giverny Capital, Chuck Royce’s Royce & Associates, and Paul Hondros’ AlphaOne Capital Partners. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds, which is based on the performance of their 13F long positions in non-micro-cap stocks.

Now that we’ve mentioned the most bullish investors, let’s also take a look at some funds that cashed in their entire stakes in the stock during the third quarter. At the top of the heap, Alexander Mitchell’s Scopus Asset Management cashed in the largest stake of all the hedgies watched by Insider Monkey, worth an estimated $5.3 million in stock, and Steve Cohen’s Point72 Asset Management was right behind this move, as the fund cut about $4.2 million worth of shares.

Let’s now take a look at hedge fund activity in other stocks similar to Knight Transportation (NYSE:KNX). We will take a look at WP Glimcher Inc (NYSE:WPG), Armstrong World Industries, Inc. (NYSE:AWI), Washington Real Estate Investment Trust (NYSE:WRE), and Wolverine World Wide, Inc. (NYSE:WWW). This group of stocks’ market values match KNX’s market value.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $399 million. That figure was $35 million in KNX’s case. Armstrong World Industries, Inc. (NYSE:AWI) is the most popular stock in this table. On the other hand Washington Real Estate Investment Trust (NYSE:WRE) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Knight Transportation (NYSE:KNX) is even less popular than WRE. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock.

Disclosure: None