Is KEYS A Good Stock To Buy According To Hedge Funds?

In this article we are going to use hedge fund sentiment as a tool and determine whether Keysight Technologies Inc (NYSE:KEYS) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is KEYS a good stock to buy? Keysight Technologies Inc (NYSE:KEYS) was in 36 hedge funds’ portfolios at the end of September. The all time high for this statistic is 50. KEYS has experienced a decrease in enthusiasm from smart money recently. There were 47 hedge funds in our database with KEYS holdings at the end of June. Our calculations also showed that KEYS 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.

John Rogers Ariel Investments

John Rogers of Ariel Investments

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis 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 let’s check out the fresh hedge fund action regarding Keysight Technologies Inc (NYSE:KEYS).

Do Hedge Funds Think KEYS Is A Good Stock To Buy Now?

Heading into the fourth quarter of 2020, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -23% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in KEYS over the last 21 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, John W. Rogers’s Ariel Investments has the biggest position in Keysight Technologies Inc (NYSE:KEYS), worth close to $84.7 million, amounting to 1.2% of its total 13F portfolio. The second largest stake is held by Brian Ashford-Russell and Tim Woolley of Polar Capital, with a $48.2 million position; 0.4% of its 13F portfolio is allocated to the stock. Other peers that hold long positions contain Francois Rochon’s Giverny Capital, John Brennan’s Sirios Capital Management and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Giverny Capital allocated the biggest weight to Keysight Technologies Inc (NYSE:KEYS), around 3.61% of its 13F portfolio. Claar Advisors is also relatively very bullish on the stock, earmarking 2.37 percent of its 13F equity portfolio to KEYS.

Because Keysight Technologies Inc (NYSE:KEYS) has faced a decline in interest from the aggregate hedge fund industry, it’s easy to see that there were a few fund managers that slashed their entire stakes heading into Q4. Interestingly, Josh Resnick’s Jericho Capital Asset Management said goodbye to the biggest stake of all the hedgies monitored by Insider Monkey, valued at about $60.5 million in stock, and Doug Silverman and Alexander Klabin’s Senator Investment Group was right behind this move, as the fund dumped about $30.2 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 11 funds heading into Q4.

Let’s go over hedge fund activity in other stocks similar to Keysight Technologies Inc (NYSE:KEYS). We will take a look at Laboratory Corp. of America Holdings (NYSE:LH), MarketAxess Holdings Inc. (NASDAQ:MKTX), Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA), Paycom Software Inc (NYSE:PAYC), Teladoc Health, Inc (NYSE:TDOC), Garmin Ltd. (NASDAQ:GRMN), and Telefonica S.A. (NYSE:TEF). This group of stocks’ market valuations match KEYS’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LH 57 1749727 5
MKTX 34 941566 1
BBVA 10 104422 -1
PAYC 38 655179 2
TDOC 47 997283 3
GRMN 32 515382 9
TEF 5 6896 -1
Average 31.9 710065 2.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.9 hedge funds with bullish positions and the average amount invested in these stocks was $710 million. That figure was $365 million in KEYS’s case. Laboratory Corp. of America Holdings (NYSE:LH) is the most popular stock in this table. On the other hand Telefonica S.A. (NYSE:TEF) is the least popular one with only 5 bullish hedge fund positions. Keysight Technologies Inc (NYSE:KEYS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for KEYS is 45.4. 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 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on KEYS as the stock returned 29.8% since the end of Q3 (through 12/18) 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.