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Were Hedge Funds Right About Dumping Kaman Corporation (KAMN)?

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 Kaman Corporation (NYSE:KAMN) and determine whether hedge funds had an edge regarding this stock.

Kaman Corporation (NYSE:KAMN) was in 13 hedge funds’ portfolios at the end of March. KAMN shareholders have witnessed a decrease in enthusiasm from smart money recently. There were 19 hedge funds in our database with KAMN holdings at the end of the previous quarter. Our calculations also showed that KAMN isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

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

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 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 13 largest cobalt producing countries to identify emerging trends that are likely to lead to 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a look at the fresh hedge fund action surrounding Kaman Corporation (NYSE:KAMN).

Hedge fund activity in Kaman Corporation (NYSE:KAMN)

Heading into the second quarter of 2020, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -32% from the previous quarter. On the other hand, there were a total of 12 hedge funds with a bullish position in KAMN a year ago. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

Is KAMN A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, GAMCO Investors, managed by Mario Gabelli, holds the number one position in Kaman Corporation (NYSE:KAMN). GAMCO Investors has a $93.1 million position in the stock, comprising 1.1% of its 13F portfolio. The second most bullish fund manager is Cardinal Capital, managed by Amy Minella, which holds a $32 million position; the fund has 1.6% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism encompass D. E. Shaw’s D E Shaw, John Murphy’s Levin Easterly Partners and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Cardinal Capital allocated the biggest weight to Kaman Corporation (NYSE:KAMN), around 1.58% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, setting aside 1.1 percent of its 13F equity portfolio to KAMN.

Since Kaman Corporation (NYSE:KAMN) has faced declining sentiment from the entirety of the hedge funds we track, we can see that there lies a certain “tier” of hedgies that elected to cut their positions entirely last quarter. Intriguingly, Kenneth Tropin’s Graham Capital Management cut the biggest position of the 750 funds watched by Insider Monkey, totaling close to $18.5 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also dropped its stock, about $3.6 million worth. These moves are interesting, as aggregate hedge fund interest fell by 6 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Kaman Corporation (NYSE:KAMN) but similarly valued. These stocks are IAMGOLD Corporation (NYSE:IAG), HNI Corp (NYSE:HNI), Tennant Company (NYSE:TNC), and Six Flags Entertainment Corp (NYSE:SIX). This group of stocks’ market caps resemble KAMN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IAG 17 107106 0
HNI 15 47165 -5
TNC 11 89348 0
SIX 30 240206 -8
Average 18.25 120956 -3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $121 million. That figure was $138 million in KAMN’s case. Six Flags Entertainment Corp (NYSE:SIX) is the most popular stock in this table. On the other hand Tennant Company (NYSE:TNC) is the least popular one with only 11 bullish hedge fund positions. Kaman Corporation (NYSE:KAMN) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 13.3% in 2020 through June 25th and surpassed the market by 16.8 percentage points. Unfortunately KAMN wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); KAMN investors were disappointed as the stock returned 2% during the second quarter 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.