Is Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS) a bargain? Money managers are turning bullish. The number of long hedge fund positions inched up by 4 lately.
In the eyes of most stock holders, hedge funds are assumed to be slow, old investment tools of the past. While there are over 8000 funds in operation today, we at Insider Monkey look at the moguls of this club, about 450 funds. Most estimates calculate that this group has its hands on most of the smart money’s total capital, and by keeping an eye on their highest performing equity investments, we have found a number of investment strategies that have historically beaten the broader indices. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points a year for a decade in our back tests, and since we’ve began to sharing our picks with our subscribers at the end of August 2012, we have trumped the S&P 500 index by 23.3 percentage points in 8 months (see all of our picks from August).
Equally as integral, optimistic insider trading activity is another way to break down the world of equities. Just as you’d expect, there are many reasons for an insider to drop shares of his or her company, but only one, very obvious reason why they would buy. Various empirical studies have demonstrated the impressive potential of this strategy if “monkeys” understand where to look (learn more here).
With these “truths” under our belt, it’s important to take a gander at the recent action encompassing Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS).
Hedge fund activity in Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS)
At the end of the first quarter, a total of 11 of the hedge funds we track held long positions in this stock, a change of 57% from the first quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their stakes considerably.
When looking at the hedgies we track, Wynnefield Capital, managed by Nelson Obus, holds the most valuable position in Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS). Wynnefield Capital has a $11.1 million position in the stock, comprising 3.8% of its 13F portfolio. Sitting at the No. 2 spot is Millennium Management, managed by Israel Englander, which held a $10.1 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other peers that are bullish include Chuck Royce’s Royce & Associates, Ken Grossman and Glen Schneider’s SG Capital Management and Glenn Russell Dubin’s Highbridge Capital Management.
As aggregate interest increased, key hedge funds have been driving this bullishness. SG Capital Management, managed by Ken Grossman and Glen Schneider, created the most valuable position in Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS). SG Capital Management had 1 million invested in the company at the end of the quarter. Glenn Russell Dubin’s Highbridge Capital Management also made a $0.7 million investment in the stock during the quarter. The following funds were also among the new KTOS investors: Neil Chriss’s Hutchin Hill Capital and Mike Vranos’s Ellington.
What do corporate executives and insiders think about Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS)?
Bullish insider trading is at its handiest when the company in question has experienced transactions within the past half-year. Over the last six-month time period, Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS) has experienced 5 unique insiders purchasing, and zero insider sales (see the details of insider trades here).
Let’s also examine hedge fund and insider activity in other stocks similar to Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS). These stocks are Ascent Capital Group Inc (NASDAQ:ASCMA), Napco Security Technologies Inc (NASDAQ:NSSC), Checkpoint Systems, Inc. (NYSE:CKP), CompX International Inc. (NYSEAMEX:CIX), and American Science & Engineering, Inc. (NASDAQ:ASEI). This group of stocks are the members of the security & protection services industry and their market caps are similar to KTOS’s market cap.
| Company Name | # of Hedge Funds | # of Insiders Buying | # of Insiders Selling |
| Ascent Capital Group Inc (NASDAQ:ASCMA) | 16 | 1 | 0 |
| Napco Security Technologies Inc (NASDAQ:NSSC) | 1 | 0 | 1 |
| Checkpoint Systems, Inc. (NYSE:CKP) | 15 | 1 | 0 |
| CompX International Inc. (NYSEAMEX:CIX) | 2 | 0 | 0 |
| American Science & Engineering, Inc. (NASDAQ:ASEI) | 12 | 0 | 3 |
With the returns exhibited by the aforementioned research, everyday investors must always pay attention to hedge fund and insider trading activity, and Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS) is an important part of this process.
