Should You Add KLA-Tencor Corp (KLAC) to Your Portfolio?

The Insider Monkey team has completed processing the quarterly 13F filings for the September quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge funds have been producing disappointing net returns in recent years, however that was partly due to the poor performance of small-cap stocks in general. Well, small-cap stocks finally turned the corner and have been beating the large-cap stocks by more than 10 percentage points over the last 5 months.This means the relevancy of hedge funds’ public filings became inarguable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards KLA-Tencor Corp (NASDAQ:KLAC).

At the end of September KLA-Tencor Corp (NASDAQ:KLAC) was included in the 13F portfolios of 46 funds tracked by Insider Monkey. The company saw an increase in enthusiasm from smart money during the third quarter, as there had been 30 investors long the stock a quarter earlier. However, 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 Waters Corporation (NYSE:WAT), Coach, Inc. (NYSE:COH), and BRF Brasil Foods SA (ADR) (NYSE:BRFS) to gather more data points.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

Keeping this in mind, let’s take a look at the recent action regarding KLA-Tencor Corp (NASDAQ:KLAC).

What have hedge funds been doing with KLA-Tencor Corp (NASDAQ:KLAC)?

As mentioned earlier, 46 hedge funds tracked by Insider Monkey were bullish on KLA-Tencor at the end of the third quarter, an increase of 53% from the end of September. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Magnetar Capital, managed by Alec Litowitz and Ross Laser, holds the number one position in KLA-Tencor Corp (NASDAQ:KLAC). Magnetar Capital has a $110.5 million position in the stock, comprising 1.7% of its 13F portfolio. On Magnetar Capital’s heels is Jim Simons’ Renaissance Technologies holding a $92.2 million position; the fund has 0.2% of its 13F portfolio invested in the stock.

Now, some big names were breaking ground themselves. Blue Mountain Capital, managed by Andrew Feldstein and Stephen Siderow, initiated the most outsized position in KLA-Tencor Corp (NASDAQ:KLAC). Blue Mountain Capital had $86.4 million invested in the company at the end of the quarter. David Costen Haley’s HBK Investments also initiated a $82.4 million position during the quarter. The other funds with brand new KLAC positions are Thomas Steyer’s Farallon Capital, Frank Brosens’s Taconic Capital, and Anand Parekh’s Alyeska Investment Group.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as KLA-Tencor Corp (NASDAQ:KLAC) but similarly valued. These stocks are Waters Corporation (NYSE:WAT), Coach, Inc. (NYSE:COH), BRF Brasil Foods SA (ADR) (NYSE:BRFS), and Cimarex Energy Co (NYSE:XEC). This group of stocks’ market valuations resemble KLAC’s market valuation.

As you can see these stocks had an average of 28 investors reporting long positions and the average amount invested in these stocks was $665 million. That figure was $968 million in KLAC’s case. Cimarex Energy Co (NYSE:XEC) is the most popular stock in this table with 43 funds holding shares. On the other hand, BRF Brasil Foods SA (ADR) (NYSE:BRFS) is the least popular one with only eight bullish hedge fund positions. Compared to these stocks KLA-Tencor Corp (NASDAQ:KLAC) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.