At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.
In this article, we are going to take a closer look at Kansas City Southern (NYSE:KSU). Overall, the stock didn’t see a lot of action last quarter, as the hedge fund sentiment remained unchanged and 35 funds held shares of the company at the end of September. Nevertheless, 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 Restaurant Brands International Inc (NYSE:QSR), LKQ Corporation (NASDAQ:LKQ), and Discovery Communications Inc. (NASDAQ:DISCK) to gather more data points.
Follow Kansas City Southern (NYSE:KSU)
Follow Kansas City Southern (NYSE:KSU)
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.
With all of this in mind, let’s review the key action surrounding Kansas City Southern (NYSE:KSU).
Hedge fund activity in Kansas City Southern (NYSE:KSU)
At the end of September, 35 of the hedge funds tracked by Insider Monkey were bullish on Kansas City Southern, unchanged over the quarter. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Stockbridge Partners, managed by Sharlyn C. Heslam, holds the largest position in Kansas City Southern (NYSE:KSU). Stockbridge Partners has a $106.1 million position in the stock, comprising 5.1% of its 13F portfolio. Sitting at the No. 2 spot is Highfields Capital Management, led by Jonathon Jacobson, holding a $104.5 million position; the fund has 1% of its 13F portfolio invested in the stock. Remaining professional money managers that hold long positions consist of Israel Englander’s Millennium Management, Anand Parekh’s Alyeska Investment Group, and Ken Fisher’s Fisher Asset Management.
Seeing as Kansas City Southern (NYSE:KSU) has witnessed declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there is a sect of hedge funds that decided to sell off their entire stakes last quarter. At the top of the heap, Keith Meister’s Corvex Capital dumped the largest position of the 700 funds monitored by Insider Monkey, worth about $55.4 million in stock, and Alexander Mitchell’s Scopus Asset Management was right behind this move, as the fund cut about $29.7 million worth of shares. These moves are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks similar to Kansas City Southern (NYSE:KSU). These stocks are Restaurant Brands International Inc (NYSE:QSR), LKQ Corporation (NASDAQ:LKQ), Discovery Communications Inc. (NASDAQ:DISCK), and Celanese Corporation (NYSE:CE). This group of stocks’ market valuations are closest to KSU’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $1.23 billion. That figure was $907 million in KSU’s case. Restaurant Brands International Inc (NYSE:QSR) is the most popular stock in this table with 32 funds holding shares. On the other hand Discovery Communications Inc. (NASDAQ:DISCK) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks Kansas City Southern (NYSE:KSU) 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.