Out of thousands of stocks that are currently traded on the market, it is difficult to determine those that can really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of over 700 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about KMG Chemicals, Inc. (NYSE:KMG).
Is KMG Chemicals, Inc. (NYSE:KMG) a bargain? Hedge funds are taking an optimistic view. The number of long hedge fund bets improved by two lately. KMG was in 9 hedge funds’ portfolios at the end of the third quarter of 2015. There were 7 hedge funds in our database with KMG positions at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Nutraceutical Int’l Corp. (NASDAQ:NUTR), Fidus Investment Corp (NASDAQ:FDUS), and FuelCell Energy, Inc. (NASDAQ:FCEL) to gather more data points.
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At the moment there are a large number of tools that stock traders employ to assess stocks. Some of the most underrated tools are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the best picks of the best hedge fund managers can beat the S&P 500 by a healthy margin (see the details here).
Now, we’re going to go over the fresh action encompassing KMG Chemicals, Inc. (NYSE:KMG).
How have hedgies been trading KMG Chemicals, Inc. (NYSE:KMG)?
At Q3’s end, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 29% from the second quarter. With hedgies’ capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Douglas T. Granat’s Trigran Investments has the biggest position in KMG Chemicals, Inc. (NYSE:KMG), worth close to $28.9 million, corresponding to 9.1% of its total 13F portfolio. On Trigran Investments’s heels is Renaissance Technologies, led by Jim Simons, holding a $4.9 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other peers with similar optimism contain Cliff Asness’s AQR Capital Management and John Overdeck and David Siegel’s Two Sigma Advisors.
With a general bullishness amongst the heavyweights, some big names have jumped into KMG Chemicals, Inc. (NYSE:KMG) headfirst. Peter Algert and Kevin Coldiron’s Algert Coldiron Investors initiated the most outsized position in KMG Chemicals, Inc. (NYSE:KMG). Algert Coldiron Investors had $0.9 million invested in the company at the end of the quarter. Chao Ku’s Nine Chapters Capital Management also made a $0.2 million investment in the stock during the quarter.
Let’s now take a look at hedge fund activity in other stocks similar to KMG Chemicals, Inc. (NYSE:KMG). These stocks are Nutraceutical Int’l Corp. (NASDAQ:NUTR), Fidus Investment Corp (NASDAQ:FDUS), FuelCell Energy, Inc. (NASDAQ:FCEL), and Nature’s Sunshine Prod. (NASDAQ:NATR). This group of stocks’ market valuations resemble KMG’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NUTR | 4 | 21375 | 0 |
| FDUS | 4 | 4470 | 1 |
| FCEL | 8 | 9322 | 1 |
| NATR | 6 | 79504 | -1 |
As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $29 million. That figure was $39 million in KMG’s case. FuelCell Energy, Inc. (NASDAQ:FCEL) is the most popular stock in this table with eight funds holding shares. On the other hand Nutraceutical Int’l Corp. (NASDAQ:NUTR) is the least popular one. Compared to these stocks KMG Chemicals, Inc. (NYSE:KMG) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
