Is Korn Ferry (KFY) a Smart Long-term Buy?

Third Avenue Management recently released its Q3 2020 Investor Letter, a copy of which you can download here. The Third Avenue Value Fund posted a return of 9.29% for the quarter, outperforming its benchmark, the MSCI World Index which returned 8.05% in the same quarter. You should check out Third Avenue Management’s top 5 stock picks for investors to buy right now, which could be the biggest winners of this year.

In the said letter, Third Avenue Management highlighted a few stocks and Korn Ferry (NYSE:KFY) is one of them. Korn Ferry (NYSE:KFY) is a management consulting company. Korn Ferry (NYSE:KFY) stock lost 11.2% and on November 10th it had a closing price of $37.65. Here is what Third Avenue Management said:

“Korn Ferry – Korn Ferry is a company that has historically been known for its market leading position in the executive search industry. This business entails highly sophisticated searches for senior roles at a wide variety of corporations and other organizations. Typical assignments might include the identification and recruitment of CEOs, CFOs or board members. This is a high margin and very lucrative practice for successful companies in this industry. However, Korn Ferry, mostly through a series of acquisitions over a number years, has expanded and diversified its lines of business to include other competencies, such as consulting roles to guide the planning of corporate workforces, the recruitment of large-scale, non C-suite workforces and a variety of educational and training consultations. Korn Ferry has also made strides building a digital business that is capable of monetizing Korn Ferry’s proprietary data, which is one of the world’s most substantial databases of employment and compensation information. The company is run by one of the industry’s most respected CEOs, who has been responsible for the company’s acquisition and diversification strategy and is also substantially aligned with shareholders via a large personal interest in the stock.

Korn Ferry’s issues today appear entirely exogenous to the company and are primarily a function of the COVID-related shutdown. Not surprisingly this has caused a reduction in new business generation for the company, which we believe to be temporary. We view the company to be quite cheap as measured by its valuation relative to any estimate of normalized profit. Furthermore, the combination of a very strong balance sheet and a highly flexible cost structure put the company in a position to endure long bouts of depressed operating conditions, if necessary. We do suspect though that there are several underappreciated factors that may drive a more rapid business recovery than some seem to expect. First, it would not be surprising to see an acceleration of C-suite and board member turnover as companies emerge from the pandemic and adjust previous plans. Similarly, the COVID experience has accelerated a number of pre-existing trends whereby a variety of large-employment industries may not be in a position to re-hire their former workforces for some time while other large-employment industries are finding themselves needing to expand workforces rapidly. Last but not least, Korn Ferry is one of the companies on the front lines of helping companies accomplish their diversity and inclusion goals. Korn Ferry’s employee education and training functions support corporate culture as it relates to diversity and inclusion and the company’s executive search functions are increasingly being called upon to help make boards and c-suites more diverse. It is our sense that this incremental source of demand is lasting and more substantial than may be appreciated today.”

Pixabay/Public Domain

In Q2 2020, the number of bullish hedge fund positions on Korn Ferry (NYSE:KFY) stock increased by about 40% from the previous quarter (see the chart here), so a number of other hedge fund managers believe in Korn Ferry’s growth potential. Our calculations showed that Korn Ferry (NYSE:KFY) isn’t ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

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