Here’s Why Vulcan Value Partners Became Bullish in Applied Materials (AMAT)

Vulcan Value Partners, an investment management firm, published its “Large Cap, Small Cap, Focus Composite, Focus Plus Composite, and All Cap Composite” second quarter 2021 investor letter – a copy of which can be downloaded here. Vulcan’s Large Cap Composite Fund delivered a 12.4% net return for the second quarter of 2021, 9.9% for the Small Cap, 14.8% for the Focus  Composite Fund, 13.9% return was delivered by the Focus Plus Composite Fund,  and 13.6% was gained by the All Cap Composite Fund for the same period. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

In the Q2 2021 investor letter of Vulcan Value Partners, the fund mentioned Applied Materials, Inc. (NASDAQ: AMAT), and discussed its stance on the firm. Applied Materials, Inc. is a Santa Clara, California-based manufacturing company, that currently has a $130.03 billion market capitalization. AMAT delivered a 64.86% return since the beginning of the year, extending its 12-month returns to 123.80%. The stock closed at $142.27 per share on August 05, 2021.

Here is what Vulcan Value Partners has to say about Applied Materials, Inc. in its Q2 2021 investor letter:

“We purchased Applied Materials Inc. during the quarter. Applied Materials provides materials engineering solutions for semiconductor fabrication equipment and manufacturing tools for advanced displays. The industry has consolidated, leaving five companies that make up approximately 70% of the market. Applied Materials is the largest of the five. Key shifts in the industry are driving demand for more complex capital equipment. Among these shifts are the acceleration in digital transformation of the global economy, the slowing of Moore’s law, and increased application of artificial intelligence (AI). Growth in the company’s services segment creates a predictable revenue stream, enduring customer relationships, and better visibility into future technologies and client needs.”

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Based on our calculations, Applied Materials, Inc. (NASDAQ: AMAT) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. AMAT was in 78 hedge fund portfolios at the end of the first quarter of 2021, compared to 61 funds in the fourth quarter of 2020. Applied Materials, Inc. (NASDAQ: AMAT) delivered a 7.01% return in the past 3 months.

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 115 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.

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