Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Applied Materials, Inc. (NASDAQ:AMAT)? The smart money sentiment can provide an answer to this question.
Is Applied Materials, Inc. (NASDAQ:AMAT) a marvelous investment now? The smart money was selling. The number of bullish hedge fund bets decreased by 5 recently. Applied Materials, Inc. (NASDAQ:AMAT) was in 73 hedge funds’ portfolios at the end of June. The all time high for this statistic is 78. Our calculations also showed that AMAT isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 78 hedge funds in our database with AMAT holdings at the end of March.
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 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
William Von Mueffling of Cantillon Capital Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, the demand for helium is soaring and there is a helium supply shortage, so we are checking out stock pitches like this emerging helium 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. With all of this in mind let’s review the new hedge fund action surrounding Applied Materials, Inc. (NASDAQ:AMAT).
Do Hedge Funds Think AMAT Is A Good Stock To Buy Now?
At the end of the second quarter, a total of 73 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards AMAT over the last 24 quarters. So, let’s see 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, Generation Investment Management, managed by David Blood and Al Gore, holds the most valuable position in Applied Materials, Inc. (NASDAQ:AMAT). Generation Investment Management has a $630.7 million position in the stock, comprising 2.6% of its 13F portfolio. On Generation Investment Management’s heels is Cantillon Capital Management, managed by William von Mueffling, which holds a $531.4 million position; the fund has 3.6% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism include David Goel and Paul Ferri’s Matrix Capital Management, Ken Fisher’s Fisher Asset Management and Brian Ashford-Russell and Tim Woolley’s Polar Capital. In terms of the portfolio weights assigned to each position Glaxis Capital Management allocated the biggest weight to Applied Materials, Inc. (NASDAQ:AMAT), around 12.98% of its 13F portfolio. Breakline Capital is also relatively very bullish on the stock, dishing out 10.4 percent of its 13F equity portfolio to AMAT.
Due to the fact that Applied Materials, Inc. (NASDAQ:AMAT) has experienced a decline in interest from the smart money, we can see that there is a sect of fund managers that elected to cut their positions entirely heading into Q3. At the top of the heap, Benjamin A. Smith’s Laurion Capital Management said goodbye to the biggest position of the “upper crust” of funds tracked by Insider Monkey, valued at about $219.4 million in stock. Robert Boucai’s fund, Newbrook Capital Advisors, also sold off its stock, about $94.9 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 5 funds heading into Q3.
Let’s also examine hedge fund activity in other stocks similar to Applied Materials, Inc. (NASDAQ:AMAT). These stocks are Raytheon Technologies Corp (NYSE:RTX), Goldman Sachs Group, Inc. (NYSE:GS), Toronto-Dominion Bank (NYSE:TD), JD.Com Inc (NASDAQ:JD), American Tower Corporation (NYSE:AMT), Sony Group Corp (NYSE:SONY), and Target Corporation (NYSE:TGT). All of these stocks’ market caps resemble AMAT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RTX | 53 | 2112283 | -5 |
| GS | 61 | 5183843 | -16 |
| TD | 17 | 303083 | -2 |
| JD | 76 | 10697800 | 1 |
| AMT | 55 | 4720340 | -3 |
| SONY | 20 | 409056 | -7 |
| TGT | 66 | 5865028 | 6 |
| Average | 49.7 | 4184490 | -3.7 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 49.7 hedge funds with bullish positions and the average amount invested in these stocks was $4184 million. That figure was $4594 million in AMAT’s case. JD.Com Inc (NASDAQ:JD) is the most popular stock in this table. On the other hand Toronto-Dominion Bank (NYSE:TD) is the least popular one with only 17 bullish hedge fund positions. Applied Materials, Inc. (NASDAQ:AMAT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AMAT is 75.5. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 26.3% in 2021 through October 29th and beat the market again by 2.3 percentage points. Unfortunately AMAT wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on AMAT were disappointed as the stock returned -3.9% since the end of June (through 10/29) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
Follow Applied Materials Inc (NASDAQ:AMAT)
Follow Applied Materials Inc (NASDAQ:AMAT)
Suggested Articles:
Disclosure: None. This article was originally published at Insider Monkey.
