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Hedge Funds Never Been This Bullish On KBR, Inc. (KBR)

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of KBR, Inc. (NYSE:KBR) based on that data and determine whether they were really smart about the stock.

Is KBR, Inc. (NYSE:KBR) an attractive investment right now? The smart money was in an optimistic mood. The number of bullish hedge fund bets advanced by 7 lately. KBR, Inc. (NYSE:KBR) was in 35 hedge funds’ portfolios at the end of June. The all time high for this statistics is 31. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that KBR isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 28 hedge funds in our database with KBR holdings at the end of March.

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 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 S&P 500 ETFs by 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 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.

Aaron Cowen Suvretta Capital

Aaron Cowen of Suvretta Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are also checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind we’re going to take a look at the latest hedge fund action surrounding KBR, Inc. (NYSE:KBR).

Hedge fund activity in KBR, Inc. (NYSE:KBR)

At the end of the second quarter, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 25% from one quarter earlier. By comparison, 22 hedge funds held shares or bullish call options in KBR a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is KBR A Good Stock To Buy?

More specifically, Millennium Management was the largest shareholder of KBR, Inc. (NYSE:KBR), with a stake worth $95.1 million reported as of the end of September. Trailing Millennium Management was Suvretta Capital Management, which amassed a stake valued at $71.3 million. Sachem Head Capital, Huber Capital Management, and Scopia Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Engine Capital allocated the biggest weight to KBR, Inc. (NYSE:KBR), around 17.17% of its 13F portfolio. Huber Capital Management is also relatively very bullish on the stock, earmarking 10.67 percent of its 13F equity portfolio to KBR.

As aggregate interest increased, specific money managers have jumped into KBR, Inc. (NYSE:KBR) headfirst. Sachem Head Capital, managed by Scott Ferguson, assembled the most valuable position in KBR, Inc. (NYSE:KBR). Sachem Head Capital had $67.7 million invested in the company at the end of the quarter. Matt Sirovich and Jeremy Mindich’s Scopia Capital also initiated a $50.9 million position during the quarter. The other funds with new positions in the stock are Todd J. Kantor’s Encompass Capital Advisors, Nathaniel August’s Mangrove Partners, and Michael Gelband’s ExodusPoint Capital.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as KBR, Inc. (NYSE:KBR) but similarly valued. These stocks are BRF SA (NYSE:BRFS), Box, Inc. (NYSE:BOX), Pinnacle Financial Partners (NASDAQ:PNFP), nVent Electric plc (NYSE:NVT), Coherent, Inc. (NASDAQ:COHR), Valley National Bancorp (NYSE:VLY), and Alarm.com Holdings Inc (NASDAQ:ALRM). 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
BRFS 16 45626 2
BOX 33 655973 -1
PNFP 14 32187 1
NVT 27 428424 -2
COHR 32 208020 9
VLY 17 25863 -5
ALRM 24 225769 1
Average 23.3 231695 0.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.3 hedge funds with bullish positions and the average amount invested in these stocks was $232 million. That figure was $605 million in KBR’s case. Box, Inc. (NYSE:BOX) is the most popular stock in this table. On the other hand Pinnacle Financial Partners (NASDAQ:PNFP) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks KBR, Inc. (NYSE:KBR) is more popular among hedge funds. Our overall hedge fund sentiment score for KBR is 90. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 33% in 2020 through the end of August and still beat the market by 23.2 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 10.8% since the end of the second quarter 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 in 2020.

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