Is KLXE A Good Stock To Buy Now?

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards KLX Energy Services Holdings, Inc. (NASDAQ:KLXE) to find out whether there were any major changes in hedge funds’ views.

Is KLXE a good stock to buy now? Hedge funds were reducing their bets on the stock. The number of bullish hedge fund bets went down by 5 recently. KLX Energy Services Holdings, Inc. (NASDAQ:KLXE) was in 7 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 21. Our calculations also showed that KLXE 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.

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.

Mario Gabelli of GAMCO Investors

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 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. 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. Keeping this in mind let’s review the key hedge fund action surrounding KLX Energy Services Holdings, Inc. (NASDAQ:KLXE).

What have hedge funds been doing with KLX Energy Services Holdings, Inc. (NASDAQ:KLXE)?

At the end of the third quarter, a total of 7 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -42% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards KLXE over the last 21 quarters. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Michel Massoud’s Melqart Asset Management has the biggest position in KLX Energy Services Holdings, Inc. (NASDAQ:KLXE), worth close to $1 million, corresponding to 0.1% of its total 13F portfolio. Coming in second is Nick Thakore of Diametric Capital, with a $0.4 million position; 0.3% of its 13F portfolio is allocated to the stock. Remaining members of the smart money that hold long positions contain Youlia Miteva’s Proxima Capital Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Mario Gabelli’s GAMCO Investors. In terms of the portfolio weights assigned to each position Proxima Capital Management allocated the biggest weight to KLX Energy Services Holdings, Inc. (NASDAQ:KLXE), around 1.82% of its 13F portfolio. Diametric Capital is also relatively very bullish on the stock, setting aside 0.29 percent of its 13F equity portfolio to KLXE.

Due to the fact that KLX Energy Services Holdings, Inc. (NASDAQ:KLXE) has experienced falling interest from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of hedge funds that slashed their full holdings in the third quarter. Interestingly, Mark Lee’s Forest Hill Capital sold off the biggest stake of the 750 funds tracked by Insider Monkey, comprising about $0.5 million in stock, and Chuck Royce’s Royce & Associates was right behind this move, as the fund sold off about $0.3 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 5 funds in the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as KLX Energy Services Holdings, Inc. (NASDAQ:KLXE) but similarly valued. We will take a look at Caladrius Biosciences Inc (NASDAQ:CLBS), Sundial Growers Inc. (NASDAQ:SNDL), Transenterix Inc (NYSE:TRXC), QuickLogic Corporation (NASDAQ:QUIK), Acer Therapeutics Inc. (NASDAQ:ACER),, Inc. (NASDAQ:SPRT), and Newgioco Group, Inc. (NYSE:NWGI). This group of stocks’ market caps are closest to KLXE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CLBS 4 1988 3
SNDL 6 4036 3
TRXC 2 984 -4
QUIK 1 730 0
ACER 2 2928 -2
SPRT 6 4505 1
NWGI 1 207 1
Average 3.1 2197 0.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 3.1 hedge funds with bullish positions and the average amount invested in these stocks was $2 million. That figure was $2 million in KLXE’s case. Sundial Growers Inc. (NASDAQ:SNDL) is the most popular stock in this table. On the other hand QuickLogic Corporation (NASDAQ:QUIK) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks KLX Energy Services Holdings, Inc. (NASDAQ:KLXE) is more popular among hedge funds. Our overall hedge fund sentiment score for KLXE is 60. 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 returned 31.6% in 2020 through December 2nd but still managed to beat the market by 16 percentage points. Hedge funds were also right about betting on KLXE as the stock returned 78.6% since the end of September (through 12/2) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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