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Is Kornit Digital Ltd. (KRNT) A Good Stock To Buy?

Reymerlyn Martin

Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 24.4% during the first 9 months of 2019 and outperformed the broader market benchmark by 4 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Kornit Digital Ltd. (NASDAQ:KRNT) was in 13 hedge funds' portfolios at the end of the second quarter of 2019. KRNT investors should be aware of an increase in activity from the world's largest hedge funds recently. There were 10 hedge funds in our database with KRNT positions at the end of the previous quarter. Our calculations also showed that KRNT isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

BlueMountain Capital Management's Returns, AUM and Holdings

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's analyze the recent hedge fund action regarding Kornit Digital Ltd. (NASDAQ:KRNT).

How are hedge funds trading Kornit Digital Ltd. (NASDAQ:KRNT)?

At the end of the second quarter, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 30% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in KRNT over the last 16 quarters. With hedge funds' capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

KRNT_oct2019

More specifically, Rima Senvest Management was the largest shareholder of Kornit Digital Ltd. (NASDAQ:KRNT), with a stake worth $13.3 million reported as of the end of March. Trailing Rima Senvest Management was Driehaus Capital, which amassed a stake valued at $10.1 million. G2 Investment Partners Management, Royce & Associates, and D E Shaw were also very fond of the stock, giving the stock large weights in their portfolios.

As industrywide interest jumped, some big names have been driving this bullishness. Blue Mountain Capital, managed by Andrew Feldstein and Stephen Siderow, created the most valuable position in Kornit Digital Ltd. (NASDAQ:KRNT). Blue Mountain Capital had $2.2 million invested in the company at the end of the quarter. John Overdeck and David Siegel's Two Sigma Advisors also initiated a $1.1 million position during the quarter. The other funds with brand new KRNT positions are Benjamin A. Smith's Laurion Capital Management, Ken Griffin's Citadel Investment Group, and David Harding's Winton Capital Management.

Let's now take a look at hedge fund activity in other stocks similar to Kornit Digital Ltd. (NASDAQ:KRNT). These stocks are Oxford Industries, Inc. (NYSE:OXM), K12 Inc. (NYSE:LRN), AtriCure Inc. (NASDAQ:ATRC), and Tortoise Energy Infrastructure Corporation (NYSE:TYG). All of these stocks' market caps are closest to KRNT's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OXM,13,93351,2 LRN,22,161549,-2 ATRC,20,115819,-5 TYG,1,1073,-1 Average,14,92948,-1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $93 million. That figure was $57 million in KRNT's case. K12 Inc. (NYSE:LRN) is the most popular stock in this table. On the other hand Tortoise Energy Infrastructure Corporation (NYSE:TYG) is the least popular one with only 1 bullish hedge fund positions. Kornit Digital Ltd. (NASDAQ:KRNT) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately KRNT wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); KRNT investors were disappointed as the stock returned -2.8% during the third 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 many of these stocks already outperformed the market so far in 2019.

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

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