Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Kaiser Aluminum Corp. (NASDAQ:KALU)? The smart money sentiment can provide an answer to this question.
Is KALU a good stock to buy now? Kaiser Aluminum Corp. (NASDAQ:KALU) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 16 hedge funds’ portfolios at the end of the third quarter of 2020. Our calculations also showed that KALU 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). 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 Krystal Biotech, Inc. (NASDAQ:KRYS), Lantheus Holdings Inc (NASDAQ:LNTH), and Perdoceo Education Corporation (NASDAQ:PRDO) to gather more data points.
Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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 real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. With all of this in mind we’re going to go over the new hedge fund action encompassing Kaiser Aluminum Corp. (NASDAQ:KALU).
Do Hedge Funds Think KALU Is A Good Stock To Buy Now?
At third quarter’s end, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2020. On the other hand, there were a total of 21 hedge funds with a bullish position in KALU a year ago. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
The largest stake in Kaiser Aluminum Corp. (NASDAQ:KALU) was held by Renaissance Technologies, which reported holding $21.3 million worth of stock at the end of September. It was followed by GLG Partners with a $8.6 million position. Other investors bullish on the company included Fisher Asset Management, Citadel Investment Group, and Third Avenue Management. In terms of the portfolio weights assigned to each position Third Avenue Management allocated the biggest weight to Kaiser Aluminum Corp. (NASDAQ:KALU), around 0.43% of its 13F portfolio. MFP Investors is also relatively very bullish on the stock, setting aside 0.26 percent of its 13F equity portfolio to KALU.
Since Kaiser Aluminum Corp. (NASDAQ:KALU) has experienced a decline in interest from hedge fund managers, it’s safe to say that there were a few hedgies that slashed their full holdings in the third quarter. It’s worth mentioning that Israel Englander’s Millennium Management cut the biggest position of the 750 funds tracked by Insider Monkey, totaling close to $3.1 million in stock. Bruce Kovner’s fund, Caxton Associates LP, also dumped its stock, about $0.3 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Kaiser Aluminum Corp. (NASDAQ:KALU) but similarly valued. These stocks are Krystal Biotech, Inc. (NASDAQ:KRYS), Lantheus Holdings Inc (NASDAQ:LNTH), Perdoceo Education Corporation (NASDAQ:PRDO), OneSpan Inc. (NASDAQ:OSPN), Veritex Holdings Inc (NASDAQ:VBTX), ProAssurance Corporation (NYSE:PRA), and Vericel Corp (NASDAQ:VCEL). This group of stocks’ market valuations match KALU’s market valuation.
|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 14.3 hedge funds with bullish positions and the average amount invested in these stocks was $126 million. That figure was $56 million in KALU’s case. Vericel Corp (NASDAQ:VCEL) is the most popular stock in this table. On the other hand Veritex Holdings Inc (NASDAQ:VBTX) is the least popular one with only 8 bullish hedge fund positions. Kaiser Aluminum Corp. (NASDAQ:KALU) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for KALU is 61.2. 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 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on KALU as the stock returned 76% since the end of Q3 (through 12/14) 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.