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Keysight Technologies Inc (KEYS) vs. Hedge Fund Favorites in 2019

While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the third quarter and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Keysight Technologies Inc (NYSE:KEYS) and see how the stock performed in comparison to hedge funds’ consensus picks.

Keysight Technologies Inc (NYSE:KEYS) shareholders have witnessed an increase in enthusiasm from smart money in recent months. 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 at the end of this article for Q2 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. 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

James Dondero Highland Capital Management

James Dondero of Highland Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Now we’re going to go over the latest hedge fund action encompassing Keysight Technologies Inc (NYSE:KEYS).

Hedge fund activity in Keysight Technologies Inc (NYSE:KEYS)

At the end of the third quarter, a total of 45 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 15% from the previous quarter. On the other hand, there were a total of 29 hedge funds with a bullish position in KEYS a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Keysight Technologies Inc (NYSE:KEYS) was held by Ariel Investments, which reported holding $119 million worth of stock at the end of September. It was followed by GLG Partners with a $81.3 million position. Other investors bullish on the company included Sirios Capital Management, Arrowstreet Capital, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Banbury Partners allocated the biggest weight to Keysight Technologies Inc (NYSE:KEYS), around 10.15% of its 13F portfolio. Southport Management is also relatively very bullish on the stock, dishing out 7.66 percent of its 13F equity portfolio to KEYS.

With a general bullishness amongst the heavyweights, some big names have jumped into Keysight Technologies Inc (NYSE:KEYS) headfirst. Alyeska Investment Group, managed by Anand Parekh, created the most valuable position in Keysight Technologies Inc (NYSE:KEYS). Alyeska Investment Group had $5.9 million invested in the company at the end of the quarter. Guy Shahar’s DSAM Partners also made a $1.4 million investment in the stock during the quarter. The other funds with brand new KEYS positions are James Dondero’s Highland Capital Management, Renee Yao’s Neo Ivy Capital, and Larry Chen and Terry Zhang’s Tairen Capital.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Keysight Technologies Inc (NYSE:KEYS) but similarly valued. We will take a look at Restaurant Brands International Inc (NYSE:QSR), Best Buy Co., Inc. (NYSE:BBY), CMS Energy Corporation (NYSE:CMS), and Lennar Corporation (NYSE:LEN). This group of stocks’ market valuations are closest to KEYS’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
QSR 55 4249554 16
BBY 27 628028 -4
CMS 26 942764 4
LEN 57 1988724 4
Average 41.25 1952268 5

View table here if you experience formatting issues.

As you can see these stocks had an average of 41.25 hedge funds with bullish positions and the average amount invested in these stocks was $1952 million. That figure was $1000 million in KEYS’s case. Lennar Corporation (NYSE:LEN) is the most popular stock in this table. On the other hand CMS Energy Corporation (NYSE:CMS) is the least popular one with only 26 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 calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on KEYS as the stock returned 67.5% in 2019 (through December 23rd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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