Hedge Funds Dropped The Ball On Applied Materials, Inc. (AMAT)

Before we spend countless hours researching a company, we’d like to analyze what insiders, hedge funds and billionaire investors think of the stock first. We would like to do so because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Applied Materials, Inc. (NASDAQ:AMAT).

Applied Materials, Inc. (NASDAQ:AMAT) shareholders have witnessed a decrease in activity from the world’s largest hedge funds lately. Our calculations also showed that AMAT isn’t among the 30 most popular stocks among hedge funds.

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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.


Cliff Asness of AQR Capital Management

We’re going to analyze the new hedge fund action surrounding Applied Materials, Inc. (NASDAQ:AMAT).

What does the smart money think about Applied Materials, Inc. (NASDAQ:AMAT)?

At the end of the fourth quarter, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards AMAT over the last 14 quarters. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).


The largest stake in Applied Materials, Inc. (NASDAQ:AMAT) was held by D E Shaw, which reported holding $253 million worth of stock at the end of September. It was followed by Lansdowne Partners with a $251.3 million position. Other investors bullish on the company included AQR Capital Management, Citadel Investment Group, and D1 Capital Partners.

Because Applied Materials, Inc. (NASDAQ:AMAT) has experienced declining sentiment from hedge fund managers, it’s easy to see that there is a sect of fund managers that decided to sell off their entire stakes in the third quarter. At the top of the heap, Thomas G. Maheras’s Tegean Capital Management cut the largest position of the 700 funds monitored by Insider Monkey, worth an estimated $19.1 million in stock, and David Kowitz and Sheldon Kasowitz’s Indus Capital was right behind this move, as the fund cut about $18.6 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 3 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Applied Materials, Inc. (NASDAQ:AMAT). We will take a look at Red Hat, Inc. (NYSE:RHT), NetEase, Inc (NASDAQ:NTES), Ross Stores, Inc. (NASDAQ:ROST), and Constellation Brands, Inc. (NYSE:STZ). All of these stocks’ market caps match AMAT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RHT 65 4018565 44
NTES 27 3285099 1
ROST 33 907243 2
STZ 62 4360416 1
Average 46.75 3142831 12

View table here if you experience formatting issues.

As you can see these stocks had an average of 46.75 hedge funds with bullish positions and the average amount invested in these stocks was $3143 million. That figure was $1674 million in AMAT’s case. Red Hat, Inc. (NYSE:RHT) is the most popular stock in this table. On the other hand NetEase, Inc (NASDAQ:NTES) is the least popular one with only 27 bullish hedge fund positions. Applied Materials, Inc. (NASDAQ:AMAT) is not the least popular stock in this group but hedge fund interest is still below average. Hedge funds clearly dropped the ball on AMAT but most of their consensus picks performed well. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. The handful of hedge funds with AMAT positions were also proven right as the stock returned 24% and outperformed the market as well.

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