Was The Smart Money Right About Piling Into KBR, Inc. (KBR)?

In this article you are going to find out whether hedge funds think KBR, Inc. (NYSE:KBR) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is KBR, Inc. (NYSE:KBR) a sound investment today? Prominent investors were becoming hopeful. The number of bullish hedge fund bets went up by 7 recently. KBR, Inc. (NYSE:KBR) was in 35 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 31. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that KBR 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 28 hedge funds in our database with KBR holdings at the end of March.

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

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Aaron Cowen Suvretta Capital

Aaron Cowen of Suvretta Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 best high dividend stocks to buy to identify high dividend stocks with upside potential in this low interest rate environment. 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. Now let’s review the recent hedge fund action surrounding KBR, Inc. (NYSE:KBR).

How are hedge funds trading KBR, Inc. (NYSE:KBR)?

At second quarter’s end, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 25% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards KBR over the last 20 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is KBR A Good Stock To Buy?

More specifically, Millennium Management was the largest shareholder of KBR, Inc. (NYSE:KBR), with a stake worth $95.1 million reported as of the end of June. Trailing Millennium Management was Suvretta Capital Management, which amassed a stake valued at $71.3 million. Sachem Head Capital, Huber Capital Management, and Scopia Capital were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Engine Capital allocated the biggest weight to KBR, Inc. (NYSE:KBR), around 17.17% of its 13F portfolio. Huber Capital Management is also relatively very bullish on the stock, dishing out 10.67 percent of its 13F equity portfolio to KBR.

Consequently, specific money managers were breaking ground themselves. Sachem Head Capital, managed by Scott Ferguson, created the biggest position in KBR, Inc. (NYSE:KBR). Sachem Head Capital had $67.7 million invested in the company at the end of the quarter. Matt Sirovich and Jeremy Mindich’s Scopia Capital also made a $50.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Todd J. Kantor’s Encompass Capital Advisors, Nathaniel August’s Mangrove Partners, and Michael Gelband’s ExodusPoint Capital.

Let’s now review hedge fund activity in other stocks similar to KBR, Inc. (NYSE:KBR). These stocks are BRF SA (NYSE:BRFS), Box, Inc. (NYSE:BOX), Pinnacle Financial Partners (NASDAQ:PNFP), nVent Electric plc (NYSE:NVT), Coherent, Inc. (NASDAQ:COHR), Valley National Bancorp (NYSE:VLY), and Alarm.com Holdings Inc (NASDAQ:ALRM). This group of stocks’ market caps are similar to KBR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BRFS 16 45626 2
BOX 33 655973 -1
PNFP 14 32187 1
NVT 27 428424 -2
COHR 32 208020 9
VLY 17 25863 -5
ALRM 24 225769 1
Average 23.3 231695 0.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.3 hedge funds with bullish positions and the average amount invested in these stocks was $232 million. That figure was $605 million in KBR’s case. Box, Inc. (NYSE:BOX) is the most popular stock in this table. On the other hand Pinnacle Financial Partners (NASDAQ:PNFP) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks KBR, Inc. (NYSE:KBR) is more popular among hedge funds. Our overall hedge fund sentiment score for KBR is 90. 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. 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 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Unfortunately KBR wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on KBR were disappointed as the stock returned -0.7% since the end of the second quarter (through 10/30) 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 most of these stocks already outperformed the market in 2020.

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