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Hedge Funds Are Betting On Kratos Defense & Security Solutions, Inc (KTOS)

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. Insider Monkey finished processing 821 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of March 31st, 2020. What do these smart investors think about Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS)?

Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS) was in 18 hedge funds’ portfolios at the end of March. KTOS has experienced an increase in hedge fund interest in recent months. There were 16 hedge funds in our database with KTOS positions at the end of the previous quarter. Our calculations also showed that KTOS 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a peek at the key hedge fund action regarding Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS).

Hedge fund activity in Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS)

At Q1’s end, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from one quarter earlier. On the other hand, there were a total of 17 hedge funds with a bullish position in KTOS a year ago. 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, Balyasny Asset Management, managed by Dmitry Balyasny, holds the largest position in Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS). Balyasny Asset Management has a $15.4 million position in the stock, comprising 0.2% of its 13F portfolio. Sitting at the No. 2 spot is D E Shaw, led by D. E. Shaw, holding a $6.2 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining peers with similar optimism comprise Israel Englander’s Millennium Management, Ken Griffin’s Citadel Investment Group and John Osterweis’s Osterweis Capital Management. 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 1.63% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, dishing out 0.31 percent of its 13F equity portfolio to KTOS.

As one would reasonably expect, some big names have jumped into Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS) headfirst. Balyasny Asset Management, managed by Dmitry Balyasny, established the largest position in Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS). Balyasny Asset Management had $15.4 million invested in the company at the end of the quarter. Nick Thakore’s Diametric Capital also initiated a $1.3 million position during the quarter. The other funds with brand new KTOS positions are Minhua Zhang’s Weld Capital Management, Greg Eisner’s Engineers Gate Manager, and Qing Li’s Sciencast Management.

Let’s now take a look at 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 Ingevity Corporation (NYSE:NGVT), Insperity Inc (NYSE:NSP), Sinclair Broadcast Group, Inc. (NASDAQ:SBGI), and Navient Corp (NASDAQ:NAVI). This group of stocks’ market caps are closest to KTOS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NGVT 29 166562 2
NSP 29 154086 8
SBGI 25 178673 -8
NAVI 33 152856 -5
Average 29 163044 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $163 million. That figure was $45 million in KTOS’s case. Navient Corp (NASDAQ:NAVI) is the most popular stock in this table. On the other hand Sinclair Broadcast Group, Inc. (NASDAQ:SBGI) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS) is even less popular than SBGI. Hedge funds dodged a bullet by taking a bearish stance towards KTOS. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.4% in 2020 through June 22nd but managed to beat the market by 15.9 percentage points. Unfortunately KTOS wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); KTOS investors were disappointed as the stock returned 20.5% during the second quarter (through June 22nd) 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 most of these stocks already outperformed the market so far in 2020.

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