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Should I Buy Knowles Corp (KN)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Knowles Corp (NYSE:KN) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

Knowles Corp (NYSE:KN) has seen an increase in support from the world’s most elite money managers in recent months. Knowles Corp (NYSE:KN) was in 24 hedge funds’ portfolios at the end of June. The all time high for this statistics is 29. Our calculations also showed that KN 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).

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

If you’d ask most traders, hedge funds are assumed to be slow, old investment tools of years past. While there are more than 8000 funds trading today, We hone in on the leaders of this group, around 850 funds. It is estimated that this group of investors handle most of the smart money’s total capital, and by observing their top picks, Insider Monkey has spotted a number of investment strategies that have historically outperformed the broader indices. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

John Rogers Ariel Investments

John Rogers of Ariel Investments

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, 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 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. 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 to get excerpts of these letters in your inbox. With all of this in mind we’re going to view the latest hedge fund action surrounding Knowles Corp (NYSE:KN).

What have hedge funds been doing with Knowles Corp (NYSE:KN)?

At the end of the second quarter, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 20% from the previous quarter. The graph below displays the number of hedge funds with bullish position in KN over the last 20 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Ariel Investments, managed by John W. Rogers, holds the most valuable position in Knowles Corp (NYSE:KN). Ariel Investments has a $71.3 million position in the stock, comprising 1.1% of its 13F portfolio. Coming in second is Ken Fisher of Fisher Asset Management, with a $45.5 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other peers with similar optimism encompass D. E. Shaw’s D E Shaw, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Paul Marshall and Ian Wace’s Marshall Wace LLP. In terms of the portfolio weights assigned to each position Intrinsic Edge Capital allocated the biggest weight to Knowles Corp (NYSE:KN), around 1.22% of its 13F portfolio. Ariel Investments is also relatively very bullish on the stock, setting aside 1.09 percent of its 13F equity portfolio to KN.

As one would reasonably expect, specific money managers have jumped into Knowles Corp (NYSE:KN) headfirst. Intrinsic Edge Capital, managed by Mark Coe, established the biggest position in Knowles Corp (NYSE:KN). Intrinsic Edge Capital had $13.1 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also made a $1.3 million investment in the stock during the quarter. The following funds were also among the new KN investors: Greg Eisner’s Engineers Gate Manager, Benjamin A. Smith’s Laurion Capital Management, and Minhua Zhang’s Weld Capital Management.

Let’s now review hedge fund activity in other stocks similar to Knowles Corp (NYSE:KN). We will take a look at Revance Therapeutics Inc (NASDAQ:RVNC), Akcea Therapeutics, Inc. (NASDAQ:AKCA), Forward Air Corporation (NASDAQ:FWRD), Zealand Pharma A/S (NASDAQ:ZEAL), Gray Television, Inc. (NYSE:GTN), Herman Miller, Inc. (NASDAQ:MLHR), and Cooper Tire & Rubber Company (NYSE:CTB). This group of stocks’ market values match KN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
RVNC 14 109451 3
AKCA 11 19426 0
FWRD 15 82471 -2
ZEAL 3 18760 0
GTN 26 134514 5
MLHR 22 113233 0
CTB 18 148991 -2
Average 15.6 89549 0.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.6 hedge funds with bullish positions and the average amount invested in these stocks was $90 million. That figure was $237 million in KN’s case. Gray Television, Inc. (NYSE:GTN) is the most popular stock in this table. On the other hand Zealand Pharma A/S (NASDAQ:ZEAL) is the least popular one with only 3 bullish hedge fund positions. Knowles Corp (NYSE:KN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for KN is 79.5. 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 21.3% in 2020 through September 25th and beat the market by 17.7 percentage points. Unfortunately KN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on KN were disappointed as the stock returned -4.1% 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.