KBR, Inc. (KBR): Are Hedge Funds Right About This Stock?

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards KBR, Inc. (NYSE:KBR).

KBR, Inc. (NYSE:KBR) has experienced an increase in enthusiasm from smart money recently. KBR, Inc. (NYSE:KBR) was in 36 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 38. Our calculations also showed that KBR 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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

Robert Pohly of Samlyn Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech 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. Keeping this in mind let’s take a peek at the latest hedge fund action regarding KBR, Inc. (NYSE:KBR).

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

At Q2’s end, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 16% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in KBR over the last 24 quarters. 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 Insider Monkey’s hedge fund database, Ross Turner’s Pelham Capital has the biggest position in KBR, Inc. (NYSE:KBR), worth close to $138.2 million, corresponding to 8.2% of its total 13F portfolio. The second most bullish fund manager is Lauren Taylor Wolfe of Impactive Capital, with a $129.5 million position; 10.7% of its 13F portfolio is allocated to the company. Some other peers with similar optimism contain Aaron Cowen’s Suvretta Capital Management, Matt Sirovich and Jeremy Mindich’s Scopia Capital and David S. Winter and David J. Millstone’s 40 North Management. In terms of the portfolio weights assigned to each position Scopia Capital allocated the biggest weight to KBR, Inc. (NYSE:KBR), around 11.47% of its 13F portfolio. Impactive Capital is also relatively very bullish on the stock, earmarking 10.74 percent of its 13F equity portfolio to KBR.

With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Pelham Capital, managed by Ross Turner, assembled the largest position in KBR, Inc. (NYSE:KBR). Pelham Capital had $138.2 million invested in the company at the end of the quarter. Robert Pohly’s Samlyn Capital also initiated a $25.4 million position during the quarter. The other funds with new positions in the stock are Dmitry Balyasny’s Balyasny Asset Management, Richard Driehaus’s Driehaus Capital, and Renee Yao’s Neo Ivy Capital.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as KBR, Inc. (NYSE:KBR) but similarly valued. These stocks are Ballard Power Systems Inc. (NASDAQ:BLDP), Qurate Retail, Inc. (NASDAQ:QRTEA), Coursera, Inc. (NYSE:COUR), The Howard Hughes Corporation (NYSE:HHC), Medallia, Inc. (NYSE:MDLA), HollyFrontier Corporation (NYSE:HFC), and SolarWinds Corporation (NYSE:SWI). This group of stocks’ market valuations are similar to KBR’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.4 hedge funds with bullish positions and the average amount invested in these stocks was $665 million. That figure was $1047 million in KBR’s case. Qurate Retail, Inc. (NASDAQ:QRTEA) is the most popular stock in this table. On the other hand Coursera, Inc. (NYSE:COUR) is the least popular one with only 11 bullish hedge fund positions. KBR, Inc. (NYSE:KBR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for KBR is 83.1. 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 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 21.8% in 2021 through October 11th and still beat the market by 4.4 percentage points. Hedge funds were also right about betting on KBR as the stock returned 10% since the end of Q2 (through 10/11) 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.