Were Hedge Funds Right About Applied Materials, Inc. (AMAT)?

While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Applied Materials, Inc. (NASDAQ:AMAT).

Is Applied Materials, Inc. (NASDAQ:AMAT) a buy right now? Investors who are in the know were taking a bullish view. The number of long hedge fund bets increased by 17 recently. Applied Materials, Inc. (NASDAQ:AMAT) was in 78 hedge funds’ portfolios at the end of March. The all time high for this statistic was previously 72. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that AMAT isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. 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 115 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

David Blood

David Blood of Generation Investment Management

At Insider Monkey, we scour multiple sources to uncover 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 EV 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 take a look at the key hedge fund action surrounding Applied Materials, Inc. (NASDAQ:AMAT).

Do Hedge Funds Think AMAT Is A Good Stock To Buy Now?

At the end of the first quarter, a total of 78 of the hedge funds tracked by Insider Monkey were long this stock, a change of 28% from the previous quarter. On the other hand, there were a total of 56 hedge funds with a bullish position in AMAT a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

Is AMAT A Good Stock To Buy?

Among these funds, Generation Investment Management held the most valuable stake in Applied Materials, Inc. (NASDAQ:AMAT), which was worth $590.9 million at the end of the fourth quarter. On the second spot was Cantillon Capital Management which amassed $504.5 million worth of shares. Whale Rock Capital Management, Matrix Capital Management, and Polar 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 Albar Capital allocated the biggest weight to Applied Materials, Inc. (NASDAQ:AMAT), around 9.73% of its 13F portfolio. Abrams Bison Investments is also relatively very bullish on the stock, earmarking 9.49 percent of its 13F equity portfolio to AMAT.

As one would reasonably expect, some big names have been driving this bullishness. Whale Rock Capital Management, managed by Alex Sacerdote, created the biggest position in Applied Materials, Inc. (NASDAQ:AMAT). Whale Rock Capital Management had $403.7 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $255.2 million position during the quarter. The following funds were also among the new AMAT investors: Peter Simmie’s Bristol Gate Capital Partners, Christopher Lyle’s SCGE Management, and Robert Boucai’s Newbrook Capital Advisors.

Let’s check out hedge fund activity in other stocks similar to Applied Materials, Inc. (NASDAQ:AMAT). These stocks are TOTAL S.A. (NYSE:TOT), International Business Machines Corp. (NYSE:IBM), HSBC Holdings plc (NYSE:HSBC), Toronto-Dominion Bank (NYSE:TD), Deere & Company (NYSE:DE), Raytheon Technologies Corp (NYSE:RTX), and Sea Limited (NYSE:SE). All of these stocks’ market caps are closest to AMAT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TOT 17 1163601 3
IBM 41 1355701 -10
HSBC 12 234093 -2
TD 19 212935 -3
DE 51 2047270 -3
RTX 58 2497449 -1
SE 98 10433038 -17
Average 42.3 2563441 -4.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.3 hedge funds with bullish positions and the average amount invested in these stocks was $2563 million. That figure was $5711 million in AMAT’s case. Sea Limited (NYSE:SE) is the most popular stock in this table. On the other hand HSBC Holdings plc (NYSE:HSBC) is the least popular one with only 12 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 78.4. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 25.8% in 2021 through August 6th and beat the market again by 6.7 percentage points. Unfortunately AMAT wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on AMAT were disappointed as the stock returned 7% since the end of March (through 8/6) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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