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Is KRA A Good Stock To Buy Now?

Abigail Fisher
·6 min read

A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended September 30, so let’s proceed with the discussion of the hedge fund sentiment on Kraton Corporation (NYSE:KRA).

Is KRA a good stock to buy now? Kraton Corporation (NYSE:KRA) was in 19 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 28. KRA has experienced an increase in hedge fund sentiment of late. There were 18 hedge funds in our database with KRA holdings at the end of June. Our calculations also showed that KRA 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). Video: Watch our video about the top 5 most popular hedge fund stocks.

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 was 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Thomas Sandell
Thomas Sandell

Tom Sandell of Sandell Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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 we're going to check out the fresh hedge fund action encompassing Kraton Corporation (NYSE:KRA).

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

At the end of September, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards KRA over the last 21 quarters. With the smart money's capital changing hands, there exists a few key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Chuck Royce's Royce & Associates has the largest position in Kraton Corporation (NYSE:KRA), worth close to $11.6 million, accounting for 0.1% of its total 13F portfolio. Coming in second is Rubric Capital Management, led by David Rosen, holding a $9.8 million position; the fund has 0.9% of its 13F portfolio invested in the stock. Remaining professional money managers that hold long positions include Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Tom Sandell's Sandell Asset Management and Ravee Mehta's Nishkama Capital. In terms of the portfolio weights assigned to each position Sandell Asset Management allocated the biggest weight to Kraton Corporation (NYSE:KRA), around 1.7% of its 13F portfolio. Proxima Capital Management is also relatively very bullish on the stock, dishing out 1.44 percent of its 13F equity portfolio to KRA.

With a general bullishness amongst the heavyweights, some big names have jumped into Kraton Corporation (NYSE:KRA) headfirst. Rubric Capital Management, managed by David Rosen, assembled the biggest position in Kraton Corporation (NYSE:KRA). Rubric Capital Management had $9.8 million invested in the company at the end of the quarter. Michael Gelband's ExodusPoint Capital also made a $2 million investment in the stock during the quarter. The following funds were also among the new KRA investors: Marc Majzner's Clearline Capital, Louis Bacon's Moore Global Investments, and Youlia Miteva's Proxima Capital Management.

Let's go over hedge fund activity in other stocks similar to Kraton Corporation (NYSE:KRA). We will take a look at Merchants Bancorp (NASDAQ:MBIN), Loral Space & Communications Inc (NASDAQ:LORL), Anterix Inc. (NASDAQ:ATEX), Tutor Perini Corp (NYSE:TPC), Tenneco Inc (NYSE:TEN), Avita Medical, Inc. (NASDAQ:RCEL), and Tanger Factory Outlet Centers Inc. (NYSE:SKT). This group of stocks' market valuations are closest to KRA's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MBIN,8,15448,0 LORL,21,238623,2 ATEX,17,292271,0 TPC,13,24265,-3 TEN,18,82480,4 RCEL,5,59882,3 SKT,13,23915,-2 Average,13.6,105269,0.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.6 hedge funds with bullish positions and the average amount invested in these stocks was $105 million. That figure was $45 million in KRA's case. Loral Space & Communications Inc (NASDAQ:LORL) is the most popular stock in this table. On the other hand Avita Medical, Inc. (NASDAQ:RCEL) is the least popular one with only 5 bullish hedge fund positions. Kraton Corporation (NYSE:KRA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for KRA is 70.1. 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 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on KRA as the stock returned 47.3% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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