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Is Knight-Swift Transportation Holdings Inc. (KNX) A Good Stock To Buy ?

Reymerlyn Martin

Is Knight-Swift Transportation Holdings Inc. (NYSE:KNX) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is Knight-Swift Transportation Holdings Inc. (NYSE:KNX) worth your attention right now? The smart money is in a pessimistic mood. The number of long hedge fund bets dropped by 1 recently. Our calculations also showed that KNX isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). KNX was in 22 hedge funds' portfolios at the end of the third quarter of 2019. There were 23 hedge funds in our database with KNX positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

[caption id="attachment_758454" align="aligncenter" width="600"] James Dondero of Highland Capital Management[/caption]

James Dondero Highland 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 review the fresh hedge fund action encompassing Knight-Swift Transportation Holdings Inc. (NYSE:KNX).

How are hedge funds trading Knight-Swift Transportation Holdings Inc. (NYSE:KNX)?

Heading into the fourth quarter of 2019, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the previous quarter. The graph below displays the number of hedge funds with bullish position in KNX over the last 17 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Knight-Swift Transportation Holdings Inc. (NYSE:KNX) was held by Impala Asset Management, which reported holding $97.6 million worth of stock at the end of September. It was followed by Luminus Management with a $37 million position. Other investors bullish on the company included Alyeska Investment Group, Citadel Investment Group, and 12th Street Asset Management. In terms of the portfolio weights assigned to each position Impala Asset Management allocated the biggest weight to Knight-Swift Transportation Holdings Inc. (NYSE:KNX), around 7.06% of its 13F portfolio. 12th Street Asset Management is also relatively very bullish on the stock, designating 4.24 percent of its 13F equity portfolio to KNX.

Because Knight-Swift Transportation Holdings Inc. (NYSE:KNX) has experienced declining sentiment from the entirety of the hedge funds we track, logic holds that there lies a certain "tier" of money managers who were dropping their positions entirely by the end of the third quarter. It's worth mentioning that Robert Polak's Anchor Bolt Capital cut the largest position of the 750 funds tracked by Insider Monkey, comprising an estimated $9.4 million in stock. Alexander Mitchell's fund, Scopus Asset Management, also sold off its stock, about $8.4 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 1 funds by the end of the third quarter.

Let's check out hedge fund activity in other stocks similar to Knight-Swift Transportation Holdings Inc. (NYSE:KNX). These stocks are Zillow Group Inc (NASDAQ:Z), Flowserve Corporation (NYSE:FLS), Sabre Corporation (NASDAQ:SABR), and First Solar, Inc. (NASDAQ:FSLR). This group of stocks' market valuations match KNX's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position Z,38,879845,-13 FLS,19,225613,-7 SABR,25,224467,13 FSLR,30,347342,6 Average,28,419317,-0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $419 million. That figure was $303 million in KNX's case. Zillow Group Inc (NASDAQ:Z) is the most popular stock in this table. On the other hand Flowserve Corporation (NYSE:FLS) is the least popular one with only 19 bullish hedge fund positions. Knight-Swift Transportation Holdings Inc. (NYSE:KNX) 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 KNX wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); KNX investors were disappointed as the stock returned 1.9% 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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