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Is KLAC A Good Stock To Buy According To Hedge Funds?

Debasis Saha
·6 min read

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 817 13F filings submitted by hedge funds and prominent investors. These filings show these funds' portfolio positions as of September 30th, 2020. What do these smart investors think about KLA Corporation (NASDAQ:KLAC)?

Is KLAC a good stock to buy? Prominent investors were getting less bullish. The number of bullish hedge fund bets decreased by 4 recently. KLA Corporation (NASDAQ:KLAC) was in 33 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 46. 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 for a quick look at the top 5 stocks). There were 37 hedge funds in our database with KLAC holdings at the end of June. Video: Watch our video about the top 5 most popular hedge fund stocks.

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 S&P 500 ETFs by more than 66 percentage points since March 2017 (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 stocks that are in our short portfolio.

Dmitry Balyasny of Balyasny Asset Managemnet
Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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 website. Now let's take a peek at the recent hedge fund action regarding KLA Corporation (NASDAQ:KLAC).

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

At the end of September, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in KLAC over the last 21 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is KLAC A Good Stock To Buy?
Is KLAC A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Alkeon Capital Management, managed by Panayotis Takis Sparaggis, holds the most valuable position in KLA Corporation (NASDAQ:KLAC). Alkeon Capital Management has a $373.5 million position in the stock, comprising 0.7% of its 13F portfolio. On Alkeon Capital Management's heels is Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $192.3 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Remaining peers with similar optimism include Cliff Asness's AQR Capital Management, Michael Rockefeller and KarláKroeker's Woodline Partners and Renaissance Technologies. In terms of the portfolio weights assigned to each position Mondrian Capital allocated the biggest weight to KLA Corporation (NASDAQ:KLAC), around 1.88% of its 13F portfolio. Woodline Partners is also relatively very bullish on the stock, designating 1.8 percent of its 13F equity portfolio to KLAC.

Seeing as KLA Corporation (NASDAQ:KLAC) has faced falling interest from hedge fund managers, it's safe to say that there is a sect of hedgies that slashed their entire stakes in the third quarter. It's worth mentioning that Ben Gordon's Blue Grotto Capital sold off the biggest position of the "upper crust" of funds watched by Insider Monkey, worth about $4.8 million in stock, and Donald Sussman's Paloma Partners was right behind this move, as the fund sold off about $2.3 million worth. These moves are interesting, as aggregate hedge fund interest fell by 4 funds in the third quarter.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as KLA Corporation (NASDAQ:KLAC) but similarly valued. These stocks are Marriott International Inc (NYSE:MAR), MSCI Inc (NYSE:MSCI), The Hershey Company (NYSE:HSY), Republic Services, Inc. (NYSE:RSG), Cadence Design Systems Inc (NASDAQ:CDNS), Brown-Forman Corporation (NYSE:BF), and PACCAR Inc (NASDAQ:PCAR). All of these stocks' market caps resemble KLAC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MAR,56,2334020,8 MSCI,47,906149,3 HSY,43,1230648,4 RSG,37,870212,0 CDNS,37,1208067,-2 BF,32,672078,4 PCAR,34,442104,4 Average,40.9,1094754,3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 40.9 hedge funds with bullish positions and the average amount invested in these stocks was $1095 million. That figure was $899 million in KLAC's case. Marriott International Inc (NYSE:MAR) is the most popular stock in this table. On the other hand Brown-Forman Corporation (NYSE:BF) is the least popular one with only 32 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. Our overall hedge fund sentiment score for KLAC is 24.6. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. A small number of hedge funds were also right about betting on KLAC as the stock returned 35.8% since the end of the third quarter (through 12/18) and outperformed the market by an even larger margin.

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

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