Hedge Funds Have Never Been This Bullish On Kadant Inc. (KAI)

There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Jeff Ubben, George Soros and Carl Icahn think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don’t cover. Because of Carl Icahn and other elite funds’ exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Kadant Inc. (NYSE:KAI).

Kadant Inc. (NYSE:KAI) has seen an increase in hedge fund sentiment lately. KAI was in 17 hedge funds’ portfolios at the end of December. There were 14 hedge funds in our database with KAI holdings at the end of the previous quarter. Our calculations also showed that kai 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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Richard Driehaus

We’re going to take a look at the latest hedge fund action encompassing Kadant Inc. (NYSE:KAI).

Hedge fund activity in Kadant Inc. (NYSE:KAI)

At the end of the fourth quarter, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 21% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in KAI over the last 14 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with KAI Positions

Among these funds, Royce & Associates held the most valuable stake in Kadant Inc. (NYSE:KAI), which was worth $46.7 million at the end of the fourth quarter. On the second spot was Renaissance Technologies which amassed $11.6 million worth of shares. Moreover, Driehaus Capital, Millennium Management, and Marshall Wace LLP were also bullish on Kadant Inc. (NYSE:KAI), allocating a large percentage of their portfolios to this stock.

Now, key money managers have jumped into Kadant Inc. (NYSE:KAI) headfirst. GLG Partners, managed by Noam Gottesman, created the biggest position in Kadant Inc. (NYSE:KAI). GLG Partners had $0.6 million invested in the company at the end of the quarter. Minhua Zhang’s Weld Capital Management also initiated a $0.4 million position during the quarter. The only other fund with a brand new KAI position is Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital.

Let’s now review hedge fund activity in other stocks similar to Kadant Inc. (NYSE:KAI). We will take a look at Inspire Medical Systems, Inc. (NYSE:INSP), Washington Prime Group Inc. (NYSE:WPG), Varex Imaging Corporation (NASDAQ:VREX), and Emerald Expositions Events, Inc. (NYSE:EEX). This group of stocks’ market caps are similar to KAI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
INSP 15 177559 2
WPG 13 9064 3
VREX 15 86005 1
EEX 11 8913 1
Average 13.5 70385 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.5 hedge funds with bullish positions and the average amount invested in these stocks was $70 million. That figure was $87 million in KAI’s case. Inspire Medical Systems, Inc. (NYSE:INSP) is the most popular stock in this table. On the other hand Emerald Expositions Events, Inc. (NYSE:EEX) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Kadant Inc. (NYSE:KAI) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on KAI, though not to the same extent, as the stock returned 18.7% and outperformed the market as well.

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