Is Knowles Corp (KN) A Good Stock To Buy?

The 700+ hedge funds and money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the third quarter, which unveil their equity positions as of September 30. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund positions. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Knowles Corp (NYSE:KN) .

Knowles Corp (NYSE:KN) was in 11 hedge funds’ portfolios at the end of September. KN investors should pay attention to an increase in hedge fund interest recently. There were 10 hedge funds in our database with KN positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Sonic Corporation (NASDAQ:SONC), Evertec Inc (NYSE:EVTC), and TowneBank (NASDAQ:TOWN) to gather more data points.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

With all of this in mind, let’s take a gander at the recent action encompassing Knowles Corp (NYSE:KN).

Hedge fund activity in Knowles Corp (NYSE:KN)

At Q3’s end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from one quarter earlier. On the other hand, there were a total of 15 hedge funds with a bullish position in KN at the beginning of this year. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Royce & Associates, led by Chuck Royce, holds the most valuable position in Knowles Corp (NYSE:KN). Royce & Associates has a $6.9 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second largest stake is held by D E Shaw, one of the largest hedge funds in the world, with a $4.5 million position; the fund has less than 0.1% of its 13F portfolio invested in the stock. Some other members of the smart money that are bullish consist of Paul Marshall and Ian Wace’s Marshall Wace LLP, Ken Fisher’s Fisher Asset Management and Jeffrey Jacobowitz’s Simcoe Capital Management. We should note that none of these elite funds are among our list of the 100 best performing elite funds which is based on the performance of their 13F long positions in non-microcap stocks.

With a general bullishness amongst the heavyweights, some big names have been driving this bullishness.  Marshall Wace LLP  initiated a $2.5 million position during the quarter. The following funds were also among the new KN investors:  Simcoe Capital Management, Peter Muller’s PDT Partners, and Ken Griffin’s Citadel Investment Group.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Knowles Corp (NYSE:KN) but similarly valued. These stocks are Sonic Corporation (NASDAQ:SONC), Evertec Inc (NYSE:EVTC), TowneBank (NASDAQ:TOWN), and OSI Systems, Inc. (NASDAQ:OSIS). This group of stocks’ market values are closest to KN’s market value.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $172 million. That figure was $18 million in KN’s case. Sonic Corporation (NASDAQ:SONC) is the most popular stock in this table. On the other hand TowneBank (NASDAQ:TOWN) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Knowles Corp (NYSE:KN) is as less popular than TOWN. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.