Were Hedge Funds Right About Piling Into Keysight Technologies Inc (KEYS)?

Reymerlyn Martin

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Keysight Technologies Inc (NYSE:KEYS).

Keysight Technologies Inc (NYSE:KEYS) shareholders have witnessed an increase in hedge fund interest of late. Keysight Technologies Inc (NYSE:KEYS) was in 47 hedge funds' portfolios at the end of June. The all time high for this statistics is 50. There were 40 hedge funds in our database with KEYS positions at the end of the first quarter. Our calculations also showed that KEYS 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). Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Paul Marshall Marshall Wace
Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 we're going to review the recent hedge fund action surrounding Keysight Technologies Inc (NYSE:KEYS).

Hedge fund activity in Keysight Technologies Inc (NYSE:KEYS)

At Q2's end, a total of 47 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards KEYS over the last 20 quarters. With hedge funds' capital changing hands, there exists a few key hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Is KEYS A Good Stock To Buy?
Is KEYS A Good Stock To Buy?

Among these funds, Ariel Investments held the most valuable stake in Keysight Technologies Inc (NYSE:KEYS), which was worth $91.1 million at the end of the third quarter. On the second spot was Jericho Capital Asset Management which amassed $60.5 million worth of shares. Marshall Wace LLP, Polar Capital, and Giverny 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 Giverny Capital allocated the biggest weight to Keysight Technologies Inc (NYSE:KEYS), around 4.03% of its 13F portfolio. Sirios Capital Management is also relatively very bullish on the stock, earmarking 3.03 percent of its 13F equity portfolio to KEYS.

As aggregate interest increased, specific money managers were leading the bulls' herd. Jericho Capital Asset Management, managed by Josh Resnick, initiated the most valuable position in Keysight Technologies Inc (NYSE:KEYS). Jericho Capital Asset Management had $60.5 million invested in the company at the end of the quarter. Doug Silverman and Alexander Klabin's Senator Investment Group also made a $30.2 million investment in the stock during the quarter. The following funds were also among the new KEYS investors: Michael Rockefeller and KarláKroeker's Woodline Partners, Seth Wunder's Black-and-White Capital, and David Fiszel's Honeycomb Asset Management.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Keysight Technologies Inc (NYSE:KEYS) but similarly valued. We will take a look at Wipro Limited (NYSE:WIT), Entergy Corporation (NYSE:ETR), The Trade Desk, Inc. (NASDAQ:TTD), Wayfair Inc (NYSE:W), Garmin Ltd. (NASDAQ:GRMN), Coupa Software Incorporated (NASDAQ:COUP), and Royal Bank of Scotland Group plc (NYSE:RBS). This group of stocks' market values resemble KEYS's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WIT,7,59120,0 ETR,32,953385,-2 TTD,20,513971,-5 W,41,3533920,7 GRMN,23,398083,-4 COUP,50,3002984,-16 RBS,5,5012,0 Average,25.4,1209496,-2.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.4 hedge funds with bullish positions and the average amount invested in these stocks was $1209 million. That figure was $564 million in KEYS's case. Coupa Software Incorporated (NASDAQ:COUP) is the most popular stock in this table. On the other hand Royal Bank of Scotland Group plc (NYSE:RBS) is the least popular one with only 5 bullish hedge fund positions. Keysight Technologies Inc (NYSE:KEYS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for KEYS is 84.9. 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 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 30% in 2020 through October 23rd and beat the market by 21 percentage points. Unfortunately KEYS wasn't nearly as popular as these 10 stocks and hedge funds that were betting on KEYS were disappointed as the stock returned 7% since the end of June (through 10/23) 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 many of these stocks already outperformed the market so far this year.

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

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