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Should You Buy MKS Instruments, Inc. (MKSI)?

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Is MKS Instruments, Inc. (NASDAQ:MKSI) a bargain? Investors who are in the know are becoming more confident. The number of long hedge fund positions rose by 5 in recent months.

To most market participants, hedge funds are perceived as worthless, outdated financial tools of the past. While there are more than 8000 funds trading today, we look at the upper echelon of this club, about 450 funds. Most estimates calculate that this group has its hands on the lion’s share of all hedge funds’ total capital, and by monitoring their best picks, we have uncovered a few investment strategies that have historically outpaced the broader indices. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points per annum for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outperformed the S&P 500 index by 23.3 percentage points in 8 months (explore the details and some picks here).

Just as key, optimistic insider trading activity is another way to break down the world of equities. Just as you’d expect, there are a number of reasons for an executive to cut shares of his or her company, but just one, very obvious reason why they would initiate a purchase. Many empirical studies have demonstrated the impressive potential of this strategy if piggybackers understand where to look (learn more here).

Consequently, let’s take a look at the key action regarding MKS Instruments, Inc. (NASDAQ:MKSI).

What does the smart money think about MKS Instruments, Inc. (NASDAQ:MKSI)?

At the end of the first quarter, a total of 14 of the hedge funds we track were bullish in this stock, a change of 56% from the first quarter. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their stakes considerably.

MKS Instruments, Inc. (NASDAQ:MKSI)Of the funds we track, Royce & Associates, managed by Chuck Royce, holds the most valuable position in MKS Instruments, Inc. (NASDAQ:MKSI). Royce & Associates has a $179.4 million position in the stock, comprising 0.5% of its 13F portfolio. Coming in second is AQR Capital Management, managed by Cliff Asness, which held a $23.2 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other hedgies that are bullish include Ken Fisher’s Fisher Asset Management, Jim Simons’s Renaissance Technologies and D. E. Shaw’s D E Shaw.

With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. SG Capital Management, managed by Ken Grossman and Glen Schneider, created the largest position in MKS Instruments, Inc. (NASDAQ:MKSI). SG Capital Management had 3.3 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $2.6 million position during the quarter. The other funds with brand new MKSI positions are Matthew Tewksbury’s Stevens Capital Management, Steven Cohen’s SAC Capital Advisors, and Mike Vranos’s Ellington.

How have insiders been trading MKS Instruments, Inc. (NASDAQ:MKSI)?

Insider trading activity, especially when it’s bullish, is most useful when the primary stock in question has seen transactions within the past six months. Over the latest 180-day time frame, MKS Instruments, Inc. (NASDAQ:MKSI) has experienced 3 unique insiders purchasing, and 8 insider sales (see the details of insider trades here).

Let’s also examine hedge fund and insider activity in other stocks similar to MKS Instruments, Inc. (NASDAQ:MKSI). These stocks are Rexnord Corp (NYSE:RXN), Polypore International, Inc. (NYSE:PPO), Briggs & Stratton Corporation (NYSE:BGG), Hillenbrand, Inc. (NYSE:HI), and AIXTRON SE (ADR) (NASDAQ:AIXG). This group of stocks are in the diversified machinery industry and their market caps are similar to MKSI’s market cap.

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