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Did Hedge Funds Make The Right Call On KBR, Inc. (KBR) ?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded KBR, Inc. (NYSE:KBR) and determine whether the smart money was really smart about this stock.

KBR, Inc. (NYSE:KBR) was in 28 hedge funds’ portfolios at the end of the first quarter of 2020. KBR has experienced a decrease in support from the world’s most elite money managers in recent months. There were 29 hedge funds in our database with KBR holdings at the end of the previous quarter. Our calculations also showed that KBR isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

Today there are a large number of metrics market participants can use to grade publicly traded companies. Some of the less utilized metrics are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the top picks of the top hedge fund managers can outperform the S&P 500 by a solid margin (see the details here).

Joe Huber - Huber Capital Management

Joe Huber of Huber Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s take a gander at the new hedge fund action encompassing KBR, Inc. (NYSE:KBR).

How have hedgies been trading KBR, Inc. (NYSE:KBR)?

Heading into the second quarter of 2020, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -3% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in KBR over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Aaron Cowen’s Suvretta Capital Management has the biggest position in KBR, Inc. (NYSE:KBR), worth close to $64.4 million, amounting to 1.7% of its total 13F portfolio. The second largest stake is held by Israel Englander of Millennium Management, with a $56.6 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish encompass Joe Huber’s Huber Capital Management, Chuck Royce’s Royce & Associates and Dmitry Balyasny’s Balyasny Asset Management. In terms of the portfolio weights assigned to each position Huber Capital Management allocated the biggest weight to KBR, Inc. (NYSE:KBR), around 10.07% of its 13F portfolio. MIK Capital is also relatively very bullish on the stock, dishing out 7.3 percent of its 13F equity portfolio to KBR.

Due to the fact that KBR, Inc. (NYSE:KBR) has experienced declining sentiment from hedge fund managers, it’s easy to see that there exists a select few fund managers who sold off their entire stakes by the end of the first quarter. At the top of the heap, Guy Shahar’s DSAM Partners said goodbye to the biggest position of the “upper crust” of funds followed by Insider Monkey, totaling about $19.3 million in stock. Carson Yost’s fund, Yost Capital Management, also dumped its stock, about $12.3 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 1 funds by the end of the first quarter.

Let’s check out hedge fund activity in other stocks similar to KBR, Inc. (NYSE:KBR). We will take a look at Noble Energy, Inc. (NASDAQ:NBL), Arrowhead Pharmaceuticals Inc. (NASDAQ:ARWR), Mantech International Corp (NASDAQ:MANT), and Crane Co. (NYSE:CR). This group of stocks’ market values are closest to KBR’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NBL 35 382923 7
ARWR 22 160633 -4
MANT 17 32174 -6
CR 26 197568 3
Average 25 193325 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $193 million. That figure was $425 million in KBR’s case. Noble Energy, Inc. (NASDAQ:NBL) is the most popular stock in this table. On the other hand Mantech International Corp (NASDAQ:MANT) is the least popular one with only 17 bullish hedge fund positions. KBR, Inc. (NYSE:KBR) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but beat the market by 15.5 percentage points. Unfortunately KBR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on KBR were disappointed as the stock returned 9.5% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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