Hedge Funds Never Been Less Bullish On Kennametal Inc. (KMT)

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process 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 Kennametal Inc. (NYSE:KMT).

Is Kennametal Inc. (NYSE:KMT) undervalued? The best stock pickers are becoming less confident. The number of long hedge fund positions were trimmed by 2 lately. Our calculations also showed that KMT 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). KMT was in 17 hedge funds’ portfolios at the end of March. There were 19 hedge funds in our database with KMT positions at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Phill Gross of Adage Capital 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. Now we’re going to go over the recent hedge fund action encompassing Kennametal Inc. (NYSE:KMT).

What does smart money think about Kennametal Inc. (NYSE:KMT)?

At the end of the first quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from the previous quarter. By comparison, 20 hedge funds held shares or bullish call options in KMT 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.

The largest stake in Kennametal Inc. (NYSE:KMT) was held by Ariel Investments, which reported holding $121.5 million worth of stock at the end of September. It was followed by GAMCO Investors with a $7.1 million position. Other investors bullish on the company included Adage Capital Management, Millennium Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Ariel Investments allocated the biggest weight to Kennametal Inc. (NYSE:KMT), around 2.13% of its 13F portfolio. Weld Capital Management is also relatively very bullish on the stock, dishing out 0.23 percent of its 13F equity portfolio to KMT.

Seeing as Kennametal Inc. (NYSE:KMT) has experienced falling interest from the entirety of the hedge funds we track, it’s safe to say that there were a few funds that decided to sell off their full holdings by the end of the first quarter. At the top of the heap, Steve Cohen’s Point72 Asset Management dropped the biggest position of all the hedgies watched by Insider Monkey, valued at an estimated $23.6 million in stock. Gregg Moskowitz’s fund, Interval Partners, also said goodbye to its stock, about $3.6 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 2 funds by the end of the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Kennametal Inc. (NYSE:KMT). We will take a look at Albany International Corp. (NYSE:AIN), FormFactor, Inc. (NASDAQ:FORM), Macy’s, Inc. (NYSE:M), and Aaron’s, Inc. (NYSE:AAN). This group of stocks’ market caps are closest to KMT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AIN 18 51239 -1
FORM 22 92958 0
M 30 355877 -2
AAN 25 163879 -7
Average 23.75 165988 -2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.75 hedge funds with bullish positions and the average amount invested in these stocks was $166 million. That figure was $148 million in KMT’s case. Macy’s, Inc. (NYSE:M) is the most popular stock in this table. On the other hand Albany International Corp. (NYSE:AIN) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Kennametal Inc. (NYSE:KMT) is even less popular than AIN. Hedge funds clearly dropped the ball on KMT as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 13.4% in 2020 through June 22nd and still beat the market by 15.9 percentage points. A small number of hedge funds were also right about betting on KMT as the stock returned 55.5% so far in the second quarter and outperformed the market by an even larger margin.

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