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 Kronos Worldwide, Inc. (NYSE:KRO)? The smart money sentiment can provide an answer to this question.
Is KRO a good stock to buy now? Kronos Worldwide, Inc. (NYSE:KRO) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 10 hedge funds’ portfolios at the end of the third quarter of 2020. Our calculations also showed that KRO 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 Vector Group Ltd (NYSE:VGR), Otter Tail Corporation (NASDAQ:OTTR), and Cortexyme, Inc. (NASDAQ:CRTX) to gather more data points.
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the 21st century investor’s toolkit there are dozens of formulas investors have at their disposal to evaluate publicly traded companies. A couple of the most useful formulas are hedge fund and insider trading sentiment. Our researchers have shown that, historically, those who follow the best picks of the best investment managers can outperform the S&P 500 by a very impressive margin (see the details here).
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. Now we’re going to take a glance at the new hedge fund action regarding Kronos Worldwide, Inc. (NYSE:KRO).
Do Hedge Funds Think Kronos Worldwide, Inc. (NYSE:KRO) Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 9 hedge funds with a bullish position in KRO a year ago. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
The largest stake in Kronos Worldwide, Inc. (NYSE:KRO) was held by Renaissance Technologies, which reported holding $20.3 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $5.3 million position. Other investors bullish on the company included Luminus Management, Citadel Investment Group, and Zebra Capital Management. In terms of the portfolio weights assigned to each position Luminus Management allocated the biggest weight to Kronos Worldwide, Inc. (NYSE:KRO), around 1.17% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, earmarking 0.93 percent of its 13F equity portfolio to KRO.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: PEAK6 Capital Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Luminus Management).
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Kronos Worldwide, Inc. (NYSE:KRO) but similarly valued. These stocks are Vector Group Ltd (NYSE:VGR), Otter Tail Corporation (NASDAQ:OTTR), Cortexyme, Inc. (NASDAQ:CRTX), Yelp Inc (NYSE:YELP), United Community Banks Inc (NASDAQ:UCBI), WestAmerica Bancorp. (NASDAQ:WABC), and Nova Measuring Instruments Ltd. (NASDAQ:NVMI). This group of stocks’ market caps are closest to KRO’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 13.9 hedge funds with bullish positions and the average amount invested in these stocks was $123 million. That figure was $35 million in KRO’s case. Yelp Inc (NYSE:YELP) is the most popular stock in this table. On the other hand Cortexyme, Inc. (NASDAQ:CRTX) is the least popular one with only 7 bullish hedge fund positions. Kronos Worldwide, Inc. (NYSE:KRO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for KRO is 29.2. 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 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on KRO as the stock returned 18.5% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.