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Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS).
Is KTOS a good stock to buy now? Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS) has experienced a decrease in hedge fund interest lately. Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS) was in 14 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 22. There were 22 hedge funds in our database with KTOS holdings at the end of June. Our calculations also showed that KTOS 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Richard Driehaus of Driehaus Capital
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 let's take a look at the fresh hedge fund action regarding Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS).
Do Hedge Funds Think KTOS Is A Good Stock To Buy Now?
At the end of September, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -36% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards KTOS over the last 21 quarters. With hedgies' capital changing hands, there exists an "upper tier" of key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Osterweis Capital Management, managed by John Osterweis, holds the most valuable position in Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS). Osterweis Capital Management has a $5.4 million position in the stock, comprising 0.4% of its 13F portfolio. The second largest stake is held by Driehaus Capital, managed by Richard Driehaus, which holds a $5.1 million position; 0.1% of its 13F portfolio is allocated to the stock. Other peers that are bullish include Michael Cowley's Sandbar Asset Management, and Chuck Royce's Royce & Associates. In terms of the portfolio weights assigned to each position Diametric Capital allocated the biggest weight to Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS), around 1.81% of its 13F portfolio. Sandbar Asset Management is also relatively very bullish on the stock, earmarking 1.21 percent of its 13F equity portfolio to KTOS.
Seeing as Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS) has experienced bearish sentiment from the aggregate hedge fund industry, it's easy to see that there lies a certain "tier" of hedgies that elected to cut their full holdings in the third quarter. It's worth mentioning that Jonathan Barrett and Paul Segal's Luminus Management dropped the largest stake of the 750 funds watched by Insider Monkey, worth close to $5 million in stock. Matthew L Pinz's fund, Pinz Capital, also dumped its stock, about $3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 8 funds in the third quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS) but similarly valued. We will take a look at Tri Pointe Group Inc (NYSE:TPH), UMB Financial Corporation (NASDAQ:UMBF), Park Hotels & Resorts Inc. (NYSE:PK), Cornerstone OnDemand, Inc. (NASDAQ:CSOD), PJT Partners Inc (NYSE:PJT), Macquarie Infrastructure Corporation (NYSE:MIC), and Umpqua Holdings Corp (NASDAQ:UMPQ). This group of stocks' market caps are closest to KTOS's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TPH,31,257365,0 UMBF,17,75481,2 PK,17,76710,-4 CSOD,24,555427,-7 PJT,16,100618,-5 MIC,31,519679,-7 UMPQ,26,202936,2 Average,23.1,255459,-2.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 23.1 hedge funds with bullish positions and the average amount invested in these stocks was $255 million. That figure was $31 million in KTOS's case. Tri Pointe Group Inc (NYSE:TPH) is the most popular stock in this table. On the other hand PJT Partners Inc (NYSE:PJT) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS) is even less popular than PJT. Our overall hedge fund sentiment score for KTOS is 16.1. 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. Hedge funds clearly dropped the ball on KTOS as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on KTOS as the stock returned 25.7% since Q3 (through December 8th) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.