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Here’s What Hedge Funds Think About KLX Energy Services Holdings, Inc. (KLXE)

Reymerlyn Martin

The government requires hedge funds and wealthy investors that crossed the $100 million equity holdings threshold are required to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on March 31. We at Insider Monkey have made an extensive database of nearly 750 of those elite funds and famous investors' filings. In this article, we analyze how these elite funds and prominent investors traded KLX Energy Services Holdings, Inc. (NASDAQ:KLXE) based on those filings.

KLX Energy Services Holdings, Inc. (NASDAQ:KLXE) shareholders have witnessed an increase in support from the world's most elite money managers recently. Our calculations also showed that KLXE isn't among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

GOTHAM ASSET MANAGEMENT

Let's take a gander at the fresh hedge fund action encompassing KLX Energy Services Holdings, Inc. (NASDAQ:KLXE).

What does smart money think about KLX Energy Services Holdings, Inc. (NASDAQ:KLXE)?

At the end of the first quarter, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from the previous quarter. By comparison, 0 hedge funds held shares or bullish call options in KLXE a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

KLXE_jun2019

More specifically, GAMCO Investors was the largest shareholder of KLX Energy Services Holdings, Inc. (NASDAQ:KLXE), with a stake worth $10.8 million reported as of the end of March. Trailing GAMCO Investors was Royce & Associates, which amassed a stake valued at $9.2 million. Ancora Advisors, Forest Hill Capital, and Laurion Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.

Consequently, specific money managers have jumped into KLX Energy Services Holdings, Inc. (NASDAQ:KLXE) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the most outsized position in KLX Energy Services Holdings, Inc. (NASDAQ:KLXE). Arrowstreet Capital had $0.5 million invested in the company at the end of the quarter. Joel Greenblatt's Gotham Asset Management also made a $0.2 million investment in the stock during the quarter. The only other fund with a new position in the stock is Matthew Hulsizer's PEAK6 Capital Management.

Let's now take a look at hedge fund activity in other stocks similar to KLX Energy Services Holdings, Inc. (NASDAQ:KLXE). These stocks are Quanterix Corporation (NASDAQ:QTRX), BBX Capital Corporation (NYSE:BBX), William Lyon Homes (NYSE:WLH), and SunCoke Energy Partners LP (NYSE:SXCP). This group of stocks' market values are similar to KLXE's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position QTRX,7,29836,0 BBX,16,43192,1 WLH,23,139014,3 SXCP,5,5850,0 Average,12.75,54473,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.75 hedge funds with bullish positions and the average amount invested in these stocks was $54 million. That figure was $37 million in KLXE's case. William Lyon Homes (NYSE:WLH) is the most popular stock in this table. On the other hand SunCoke Energy Partners LP (NYSE:SXCP) is the least popular one with only 5 bullish hedge fund positions. KLX Energy Services Holdings, Inc. (NASDAQ:KLXE) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately KLXE wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); KLXE investors were disappointed as the stock returned -19.3% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.

Disclosure: None. This article was originally published at Insider Monkey.

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