Is MKSI Stock A Buy or Sell?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding MKS Instruments, Inc. (NASDAQ:MKSI).

Is MKSI stock a buy? Investors who are in the know were becoming less confident. The number of long hedge fund bets shrunk by 8 recently. MKS Instruments, Inc. (NASDAQ:MKSI) was in 27 hedge funds’ portfolios at the end of December. The all time high for this statistic is 35. Our calculations also showed that MKSI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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. Hedge funds have more than $3 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. 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 124 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x 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. Now let’s take a gander at the latest hedge fund action surrounding MKS Instruments, Inc. (NASDAQ:MKSI).

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

Heading into the first quarter of 2021, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -23% from the previous quarter. On the other hand, there were a total of 28 hedge funds with a bullish position in MKSI a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

The largest stake in MKS Instruments, Inc. (NASDAQ:MKSI) was held by Royce & Associates, which reported holding $144.7 million worth of stock at the end of December. It was followed by Fisher Asset Management with a $79.3 million position. Other investors bullish on the company included Value Holdings LP, Citadel Investment Group, and AQR Capital Management. In terms of the portfolio weights assigned to each position Value Holdings LP allocated the biggest weight to MKS Instruments, Inc. (NASDAQ:MKSI), around 12.79% of its 13F portfolio. Sandler Capital Management is also relatively very bullish on the stock, designating 2.29 percent of its 13F equity portfolio to MKSI.

Since MKS Instruments, Inc. (NASDAQ:MKSI) has faced declining sentiment from the smart money, we can see that there was a specific group of fund managers that elected to cut their entire stakes in the fourth quarter. Intriguingly, Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC dumped the biggest position of the “upper crust” of funds tracked by Insider Monkey, worth an estimated $1.9 million in stock. Joshua Nash’s fund, Ulysses Management, also said goodbye to its stock, about $1.3 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 8 funds in the fourth quarter.

Let’s now take a look at hedge fund activity in other stocks similar to MKS Instruments, Inc. (NASDAQ:MKSI). These stocks are Lightspeed POS Inc. (NYSE:LSPD), Bruker Corporation (NASDAQ:BRKR), CF Industries Holdings, Inc. (NYSE:CF), LPL Financial Holdings Inc (NASDAQ:LPLA), Athene Holding Ltd. (NYSE:ATH), Tata Motors Limited (NYSE:TTM), and Vereit Inc (NYSE:VER). This group of stocks’ market valuations are closest to MKSI’s market valuation.

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As you can see these stocks had an average of 27.7 hedge funds with bullish positions and the average amount invested in these stocks was $685 million. That figure was $409 million in MKSI’s case. LPL Financial Holdings Inc (NASDAQ:LPLA) is the most popular stock in this table. On the other hand Tata Motors Limited (NYSE:TTM) is the least popular one with only 7 bullish hedge fund positions. MKS Instruments, Inc. (NASDAQ:MKSI) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MKSI is 47.9. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and still beat the market by 0.9 percentage points. A small number of hedge funds were also right about betting on MKSI as the stock returned 20.5% since the end of the fourth quarter (through 4/19) and outperformed the market by an even larger margin.

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

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