We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Applied Materials, Inc. (NASDAQ:AMAT).
Is AMAT a good stock to buy now? Applied Materials, Inc. (NASDAQ:AMAT) shareholders have witnessed an increase in hedge fund sentiment lately. Applied Materials, Inc. (NASDAQ:AMAT) was in 59 hedge funds’ portfolios at the end of September. The all time high for this statistics is 72. There were 58 hedge funds in our database with AMAT positions at the end of the second quarter. Our calculations also showed that AMAT isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
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 66 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.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets. Tesla’s stock price skyrocketed, yet lithium prices are still below their 2019 highs. So, we are checking out this lithium stock right now. We go through lists like the 15 best blue chip stocks to buy 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now we’re going to go over the key hedge fund action encompassing Applied Materials, Inc. (NASDAQ:AMAT).
What have hedge funds been doing with Applied Materials, Inc. (NASDAQ:AMAT)?
Heading into the fourth quarter of 2020, a total of 59 of the hedge funds tracked by Insider Monkey were long this stock, a change of 2% from one quarter earlier. By comparison, 55 hedge funds held shares or bullish call options in AMAT a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Generation Investment Management held the most valuable stake in Applied Materials, Inc. (NASDAQ:AMAT), which was worth $312.3 million at the end of the third quarter. On the second spot was Cantillon Capital Management which amassed $233.4 million worth of shares. AQR Capital Management, Arrowstreet Capital, and Matrix Capital Management 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 Shelter Haven Capital Management allocated the biggest weight to Applied Materials, Inc. (NASDAQ:AMAT), around 6.58% of its 13F portfolio. Lansdowne Partners is also relatively very bullish on the stock, designating 6.11 percent of its 13F equity portfolio to AMAT.
As aggregate interest increased, key hedge funds were leading the bulls’ herd. Baupost Group, managed by Seth Klarman, created the biggest position in Applied Materials, Inc. (NASDAQ:AMAT). Baupost Group had $137.1 million invested in the company at the end of the quarter. Lee Ainslie’s Maverick Capital also made a $53.2 million investment in the stock during the quarter. The other funds with brand new AMAT positions are Gavin M. Abrams’s Abrams Bison Investments, Zach Schreiber’s Point State Capital, and Richard Mashaal’s Rima Senvest Management.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Applied Materials, Inc. (NASDAQ:AMAT) but similarly valued. We will take a look at Vale SA (NYSE:VALE), ABB Ltd (NYSE:ABB), U.S. Bancorp (NYSE:USB), Mercadolibre Inc (NASDAQ:MELI), Global Payments Inc (NYSE:GPN), Northrop Grumman Corporation (NYSE:NOC), and Chubb Limited (NYSE:CB). This group of stocks’ market caps are similar to AMAT’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 45.9 hedge funds with bullish positions and the average amount invested in these stocks was $2995 million. That figure was $2499 million in AMAT’s case. Mercadolibre Inc (NASDAQ:MELI) is the most popular stock in this table. On the other hand ABB Ltd (NYSE:ABB) is the least popular one with only 13 bullish hedge fund positions. Applied Materials, Inc. (NASDAQ:AMAT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AMAT is 64.4. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. Hedge funds were also right about betting on AMAT as the stock returned 43.9% since the end of Q3 (through 12/2) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.