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Is Kratos Defense & Security Solutions, Inc (KTOS) A Good Stock to Buy?

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The worries about the election and the ongoing uncertainty about the path of interest-rate increases have been keeping investors on the sidelines. Of course, most hedge funds and other asset managers have been underperforming main stock market indices since the middle of 2015. Interestingly though, smaller-cap stocks registered their best performance relative to the large-capitalization stocks since the end of the June quarter, suggesting that this may be the best time to take a cue from their stock picks. In fact, the Russell 2000 Index gained more than 15% since the beginning of the third quarter, while the Standard and Poor’s 500 benchmark returned less than 6%. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS).

Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS) has experienced an increase in hedge fund sentiment lately. KTOS was in 10 hedge funds’ portfolios at the end of the third quarter of 2016. There were 9 hedge funds in our database with KTOS positions at the end of the second quarter. At the end of this article we will also compare KTOS to other stocks including Carbonite Inc (NASDAQ:CARB), QCR Holdings, Inc. (NASDAQ:QCRH), and Federal Agricultural Mortgage Corp. (NYSE:AGM) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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How are hedge funds trading Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS)?

At Q3’s end, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a boost of 11% from one quarter earlier. By comparison, 6 hedge funds held shares or bullish call options in KTOS heading into this year, which has since risen by 66%. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

HedgeFundSentimentChart

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Chuck Royce of Royce & Associates holds the most valuable position in Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS), owning a $23.4 million position in the stock. The second most bullish fund manager is Millennium Management, one of the 10 largest hedge funds in the world, with a $13.2 million position. Some other professional money managers that are bullish encompass David E. Shaw’s D E Shaw, Peter Algert and Kevin Coldiron’s Algert Coldiron Investors, and Ken Griffin’s Citadel Investment Group. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds, which is based on the performance of their 13F long positions in non-micro-cap stocks.

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