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KLA Corporation (KLAC): Hedge Fund Interest Inching Up

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards KLA Corporation (NASDAQ:KLAC) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Is KLA Corporation (NASDAQ:KLAC) a safe investment now? Investors who are in the know were becoming more confident. The number of long hedge fund positions improved by 11 in recent months. KLA Corporation (NASDAQ:KLAC) was in 37 hedge funds’ portfolios at the end of June. The all time high for this statistics is 46. Our calculations also showed that KLAC isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 26 hedge funds in our database with KLAC holdings at the end of March.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

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 precious metals prices. So, we are checking out this junior gold mining stock. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world 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. Now let’s check out the fresh hedge fund action encompassing KLA Corporation (NASDAQ:KLAC).

Hedge fund activity in KLA Corporation (NASDAQ:KLAC)

At the end of the second quarter, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 42% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards KLAC over the last 20 quarters. With hedge funds’ capital changing hands, there exists a select group of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

The largest stake in KLA Corporation (NASDAQ:KLAC) was held by Alkeon Capital Management, which reported holding $351.6 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $89.1 million position. Other investors bullish on the company included AQR Capital Management, Woodline Partners, and Adage Capital Management. In terms of the portfolio weights assigned to each position Blue Grotto Capital allocated the biggest weight to KLA Corporation (NASDAQ:KLAC), around 3.07% of its 13F portfolio. Breakline Capital is also relatively very bullish on the stock, setting aside 2.19 percent of its 13F equity portfolio to KLAC.

As one would reasonably expect, key hedge funds have been driving this bullishness. Woodline Partners, managed by Michael Rockefeller and KarláKroeker, established the biggest position in KLA Corporation (NASDAQ:KLAC). Woodline Partners had $50.2 million invested in the company at the end of the quarter. Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners also made a $7.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Kevin McCarthy’s Breakline Capital, Matthew Hulsizer’s PEAK6 Capital Management, and Mario Gabelli’s GAMCO Investors.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as KLA Corporation (NASDAQ:KLAC) but similarly valued. These stocks are ICICI Bank Limited (NYSE:IBN), IHS Markit Ltd. (NYSE:INFO), Canadian Imperial Bank of Commerce (NYSE:CM), EOG Resources Inc (NYSE:EOG), Royalty Pharma plc (NASDAQ:RPRX), Seattle Genetics, Inc. (NASDAQ:SGEN), and Synopsys, Inc. (NASDAQ:SNPS). This group of stocks’ market caps are closest to KLAC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IBN 20 231584 -4
INFO 44 1532350 0
CM 6 158840 -4
EOG 45 696070 1
RPRX 24 2716389 24
SGEN 38 8430115 11
SNPS 34 931266 3
Average 30.1 2099516 4.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.1 hedge funds with bullish positions and the average amount invested in these stocks was $2100 million. That figure was $662 million in KLAC’s case. EOG Resources Inc (NYSE:EOG) is the most popular stock in this table. On the other hand Canadian Imperial Bank of Commerce (NYSE:CM) is the least popular one with only 6 bullish hedge fund positions. KLA Corporation (NASDAQ:KLAC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for KLAC is 73.9. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 33% in 2020 through the end of August and beat the market by 23.2 percentage points. Unfortunately KLAC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on KLAC were disappointed as the stock returned 5.9% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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