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Is KLA Corporation (KLAC) A Good Stock To Buy?

Asma UL Husna

Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 26% in 2019 (through November 22nd). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of nearly 35% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds' consensus stock picks generate superior risk-adjusted returns. That's why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like KLA Corporation (NASDAQ:KLAC).

Is KLA Corporation (NASDAQ:KLAC) going to take off soon? The best stock pickers are getting more bullish. The number of long hedge fund bets inched up by 4 recently. Our calculations also showed that KLAC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

In the financial world there are plenty of tools stock market investors have at their disposal to analyze stocks. Two of the less known tools are hedge fund and insider trading moves. Our experts have shown that, historically, those who follow the top picks of the top money managers can outpace the market by a superb margin (see the details here).

[caption id="attachment_69704" align="aligncenter" width="450"] Andrew Sandler of Sandler Capital Management[/caption]

Andrew Sandler of Sandler Capital Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's take a look at the key hedge fund action surrounding KLA Corporation (NASDAQ:KLAC).

What have hedge funds been doing with KLA Corporation (NASDAQ:KLAC)?

At Q3's end, a total of 28 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards KLAC over the last 17 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

KLAC_dec2019

The largest stake in KLA Corporation (NASDAQ:KLAC) was held by Arrowstreet Capital, which reported holding $151.6 million worth of stock at the end of September. It was followed by Alkeon Capital Management with a $143.2 million position. Other investors bullish on the company included Holocene Advisors, Theleme Partners, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Theleme Partners allocated the biggest weight to KLA Corporation (NASDAQ:KLAC), around 4.45% of its portfolio. Mondrian Capital is also relatively very bullish on the stock, setting aside 1.93 percent of its 13F equity portfolio to KLAC.

As industrywide interest jumped, key hedge funds were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, initiated the biggest position in KLA Corporation (NASDAQ:KLAC). Arrowstreet Capital had $151.6 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also initiated a $13.8 million position during the quarter. The other funds with brand new KLAC positions are David E. Shaw's D E Shaw, Andrew Sandler's Sandler Capital Management, and Ernest Chow and Jonathan Howe's Sensato Capital Management.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as KLA Corporation (NASDAQ:KLAC) but similarly valued. We will take a look at McKesson Corporation (NYSE:MCK), Sprint Corporation (NYSE:S), Lululemon Athletica inc. (NASDAQ:LULU), and Willis Towers Watson Public Limited Company (NASDAQ:WLTW). This group of stocks' market values match KLAC's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MCK,39,1982389,3 S,23,885703,-2 LULU,46,1527406,-3 WLTW,35,1905841,2 Average,35.75,1575335,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.75 hedge funds with bullish positions and the average amount invested in these stocks was $1575 million. That figure was $784 million in KLAC's case. Lululemon Athletica inc. (NASDAQ:LULU) is the most popular stock in this table. On the other hand Sprint Corporation (NYSE:S) is the least popular one with only 23 bullish hedge fund positions. KLA Corporation (NASDAQ:KLAC) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately KLAC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); KLAC investors were disappointed as the stock returned 3.3% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.

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

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