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Do Hedge Funds Love Kansas City Southern (KSU)?

·5 min read

In this article we will take a look at whether hedge funds think Kansas City Southern (NYSE:KSU) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Kansas City Southern (NYSE:KSU) was in 59 hedge funds' portfolios at the end of the third quarter of 2021. The all time high for this statistic is 61. KSU shareholders have witnessed a decrease in support from the world's most elite money managers lately. There were 61 hedge funds in our database with KSU holdings at the end of June. Our calculations also showed that KSU isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so 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. Keeping this in mind we're going to analyze the fresh hedge fund action encompassing Kansas City Southern (NYSE:KSU).

Michael Hintze CQS Capital
Michael Hintze CQS Capital

Michael Hintze of CQS Cayman LP

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

Heading into the fourth quarter of 2021, a total of 59 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from the previous quarter. On the other hand, there were a total of 53 hedge funds with a bullish position in KSU a year ago. With the smart money's capital changing hands, there exists a select group of notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Among these funds, Bill & Melinda Gates Foundation Trust held the most valuable stake in Kansas City Southern (NYSE:KSU), which was worth $592.7 million at the end of the third quarter. On the second spot was Pentwater Capital Management which amassed $574.6 million worth of shares. Segantii Capital, Millennium Management, and TIG Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Twin Capital Management allocated the biggest weight to Kansas City Southern (NYSE:KSU), around 44.07% of its 13F portfolio. Hunting Hill Global Capital is also relatively very bullish on the stock, dishing out 22.7 percent of its 13F equity portfolio to KSU.

Since Kansas City Southern (NYSE:KSU) has faced declining sentiment from the entirety of the hedge funds we track, it's easy to see that there exists a select few fund managers that elected to cut their positions entirely in the third quarter. Intriguingly, Jimmy Levin's Sculptor Capital dropped the biggest position of the 750 funds tracked by Insider Monkey, valued at close to $107.7 million in call options, and Israel Englander's Millennium Management was right behind this move, as the fund cut about $99.2 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 2 funds in the third quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Kansas City Southern (NYSE:KSU) but similarly valued. These stocks are Upstart Holdings, Inc. (NASDAQ:UPST), Yum China Holdings, Inc. (NYSE:YUMC), The Hartford Financial Services Group Inc (NYSE:HIG), Hess Corporation (NYSE:HES), Devon Energy Corporation (NYSE:DVN), ZoomInfo Technologies Inc. (NASDAQ:ZI), and Caesars Entertainment Inc. (NASDAQ:CZR). This group of stocks' market values resemble KSU's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UPST,23,5076367,2 YUMC,30,832648,-2 HIG,34,941705,-9 HES,27,726783,-4 DVN,48,1400610,-2 ZI,57,1960736,22 CZR,64,1882913,-9 Average,40.4,1831680,-0.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.4 hedge funds with bullish positions and the average amount invested in these stocks was $1832 million. That figure was $4323 million in KSU's case. Caesars Entertainment Inc. (NASDAQ:CZR) is the most popular stock in this table. On the other hand Upstart Holdings, Inc. (NASDAQ:UPST) is the least popular one with only 23 bullish hedge fund positions. Kansas City Southern (NYSE:KSU) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for KSU is 75.9. 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 28.6% in 2021 through November 30th and still beat the market by 5.6 percentage points. Hedge funds were also right about betting on KSU as the stock returned 7.5% since the end of Q3 (through 11/30) 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.