Should You Avoid KapStone Paper and Packaging Corp. (KS)?

The Insider Monkey team has completed processing the quarterly 13F filings for the September quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge funds have been producing disappointing net returns in recent years, however that was partly due to the poor performance of small-cap stocks in general. Well, small-cap stocks finally turned the corner and have been beating the large-cap stocks by more than 10 percentage points over the last 5 months.This means the relevancy of hedge funds’ public filings became inarguable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards KapStone Paper and Packaging Corp. (NYSE:KS) .

Is KapStone Paper and Packaging Corp. (NYSE:KS) a buy, sell, or hold? Money managers are actually turning less bullish. The number of long hedge fund bets were trimmed by 3 lately. KS was in 18 hedge funds’ portfolios at the end of September. There were 21 hedge funds in our database with KS positions at the end of the previous quarter. At the end of this article we will also compare KS to other stocks including Westamerica Bancorporation (NASDAQ:WABC), Pacira Pharmaceuticals Inc (NASDAQ:PCRX), and SUPERVALU INC. (NYSE:SVU) to get a better sense of its popularity.

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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How have hedgies been trading KapStone Paper and Packaging Corp. (NYSE:KS)?

Heading into the fourth quarter of 2016, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a drop 14% from one quarter earlier. On the other hand, 14 hedge funds held shares or bullish call options in KS heading into this year, so ownership of the stock is still up since then. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Israel Englander’s Millennium Management holds the biggest position in KapStone Paper and Packaging Corp. (NYSE:KS) which has a $52.6 million position in the stock. Sitting at the No. 2 spot is Anand Parekh’s Alyeska Investment Group, which holds a $30.6 million position. Remaining members of the smart money that are bullish include Steve Cohen’s Point72 Asset Management, Gilchrist Berg’s Water Street Capital, and Joe Huber’s Huber Capital Management. 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-microcap stocks.

Seeing as KapStone Paper and Packaging Corp. (NYSE:KS) has weathered declining sentiment from hedge fund managers, we can see that there is a sect of hedge funds that elected to cut their positions entirely by the end of the third quarter. Interestingly, Millennium Management cut the largest call options stake of the 700 funds followed by Insider Monkey, valued at close to $2 million in stock (while retaining its aforementioned long position). Paul Orlin and Alex Porter’s fund, Amici Capital, also sold off its stock, about $2 million worth.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as KapStone Paper and Packaging Corp. (NYSE:KS) but similarly valued. These stocks are WestAmerica Bancorp. (NASDAQ:WABC), Pacira Pharmaceuticals Inc (NASDAQ:PCRX), SUPERVALU INC. (NYSE:SVU), and Apollo Investment Corp. (NASDAQ:AINV). This group of stocks’ market valuations are closest to KS’s market valuation.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $153 million. That figure was $164 million in KS’s case. SUPERVALU INC. (NYSE:SVU) is the most popular stock in this table. On the other hand WestAmerica Bancorp. (NASDAQ:WABC) is the least popular one with only 6 bullish hedge fund positions. KapStone Paper and Packaging Corp. (NYSE:KS) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard SVU might be a better candidate to consider taking a long position in.

Disclosure: None