How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Applied Materials, Inc. (NASDAQ:AMAT).
Is Applied Materials, Inc. (NASDAQ:AMAT) going to take off soon? Money managers were betting on the stock. The number of bullish hedge fund bets inched up by 2 recently. Applied Materials, Inc. (NASDAQ:AMAT) was in 61 hedge funds’ portfolios at the end of December. The all time high for this statistic is 72. Our calculations also showed that AMAT isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 59 hedge funds in our database with AMAT positions at the end of the third quarter.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 124 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Lee Ainslie of Maverick Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind we’re going to analyze the fresh hedge fund action encompassing Applied Materials, Inc. (NASDAQ:AMAT).
Do Hedge Funds Think AMAT Is A Good Stock To Buy Now?
At the end of the fourth quarter, a total of 61 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from the third quarter of 2020. Below, you can check out the change in hedge fund sentiment towards AMAT over the last 22 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Generation Investment Management was the largest shareholder of Applied Materials, Inc. (NASDAQ:AMAT), with a stake worth $452 million reported as of the end of December. Trailing Generation Investment Management was Cantillon Capital Management, which amassed a stake valued at $335.7 million. Citadel Investment Group, Maverick Capital, and Matrix Capital Management 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 Abrams Bison Investments allocated the biggest weight to Applied Materials, Inc. (NASDAQ:AMAT), around 7.68% of its 13F portfolio. Lansdowne Partners is also relatively very bullish on the stock, setting aside 7.41 percent of its 13F equity portfolio to AMAT.
As one would reasonably expect, key hedge funds have jumped into Applied Materials, Inc. (NASDAQ:AMAT) headfirst. Polar Capital, managed by Brian Ashford-Russell and Tim Woolley, created the biggest position in Applied Materials, Inc. (NASDAQ:AMAT). Polar Capital had $173.8 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $105.4 million position during the quarter. The other funds with new positions in the stock are Suraj Parkash Chopra’s Force Hill Capital Management, Ben Gordon’s Blue Grotto Capital, and David Costen Haley’s HBK Investments.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Applied Materials, Inc. (NASDAQ:AMAT) but similarly valued. These stocks are Zoetis Inc (NYSE:ZTS), Canadian National Railway Company (NYSE:CNI), Altria Group Inc (NYSE:MO), Fiserv, Inc. (NASDAQ:FISV), NIO Inc. (NYSE:NIO), Automatic Data Processing (NASDAQ:ADP), and Cigna Corporation (NYSE:CI). All of these stocks’ market caps are similar to AMAT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ZTS | 61 | 2389697 | 3 |
| CNI | 31 | 2188963 | 5 |
| MO | 37 | 1082661 | -10 |
| FISV | 94 | 5178126 | 4 |
| NIO | 34 | 2634013 | -1 |
| ADP | 48 | 3064769 | 6 |
| CI | 57 | 2578300 | -5 |
| Average | 51.7 | 2730933 | 0.3 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 51.7 hedge funds with bullish positions and the average amount invested in these stocks was $2731 million. That figure was $3632 million in AMAT’s case. Fiserv, Inc. (NASDAQ:FISV) is the most popular stock in this table. On the other hand Canadian National Railway Company (NYSE:CNI) is the least popular one with only 31 bullish hedge fund positions. Applied Materials, Inc. (NASDAQ:AMAT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AMAT is 56.2. 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 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on AMAT as the stock returned 54.1% since the end of Q4 (through 4/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.
