Is Kingsoft Cloud Holdings Limited (KC) A Good Stock To Buy?

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Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Kingsoft Cloud Holdings Limited (NASDAQ:KC)? The smart money sentiment can provide an answer to this question.

Is KC a good stock to buy? Kingsoft Cloud Holdings Limited (NASDAQ:KC) was in 16 hedge funds’ portfolios at the end of March. The all time high for this statistic is 29. KC has seen a decrease in enthusiasm from smart money recently. There were 20 hedge funds in our database with KC holdings at the end of December. Our calculations also showed that KC isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Howard Marks of Oaktree Capital

Howard Marks of Oaktree Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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. Now we’re going to review the latest hedge fund action encompassing Kingsoft Cloud Holdings Limited (NASDAQ:KC).

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

At the end of the first quarter, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from the fourth quarter of 2020. On the other hand, there were a total of 0 hedge funds with a bullish position in KC a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

Is KC A Good Stock To Buy?

Among these funds, York Capital Management held the most valuable stake in Kingsoft Cloud Holdings Limited (NASDAQ:KC), which was worth $30.4 million at the end of the fourth quarter. On the second spot was Citadel Investment Group which amassed $15.4 million worth of shares. Millennium Management, Cartica Management, and Paradice Investment 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 York Capital Management allocated the biggest weight to Kingsoft Cloud Holdings Limited (NASDAQ:KC), around 4.37% of its 13F portfolio. Cartica Management is also relatively very bullish on the stock, setting aside 3.73 percent of its 13F equity portfolio to KC.

Due to the fact that Kingsoft Cloud Holdings Limited (NASDAQ:KC) has witnessed bearish sentiment from the aggregate hedge fund industry, logic holds that there were a few funds who were dropping their entire stakes by the end of the first quarter. At the top of the heap, Frank Fu’s CaaS Capital dumped the biggest stake of the 750 funds watched by Insider Monkey, valued at close to $27.7 million in stock. Howard Marks’s fund, Oaktree Capital Management, also dropped its stock, about $22 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 4 funds by the end of the first quarter.

Let’s check out hedge fund activity in other stocks similar to Kingsoft Cloud Holdings Limited (NASDAQ:KC). We will take a look at Alleghany Corporation (NYSE:Y), SEI Investments Company (NASDAQ:SEIC), Amedisys Inc (NASDAQ:AMED), Gentex Corporation (NASDAQ:GNTX), West Fraser Timber Co. Ltd. (NYSE:WFG), Vornado Realty Trust (NYSE:VNO), and Mirati Therapeutics, Inc. (NASDAQ:MRTX). All of these stocks’ market caps resemble KC’s market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position Y,34,359891,0 SEIC,27,304623,-6 AMED,26,324073,6 GNTX,35,537554,-1 WFG,25,580726,25 VNO,25,216181,2 MRTX,57,2867424,1 Average,32.7,741496,3.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.7 hedge funds with bullish positions and the average amount invested in these stocks was $741 million. That figure was $92 million in KC’s case. Mirati Therapeutics, Inc. (NASDAQ:MRTX) is the most popular stock in this table. On the other hand West Fraser Timber Co. Ltd. (NYSE:WFG) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Kingsoft Cloud Holdings Limited (NASDAQ:KC) is even less popular than WFG. Our overall hedge fund sentiment score for KC is 17.6. 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. Hedge funds dodged a bullet by taking a bearish stance towards KC. Our calculations showed that the top 10 most popular hedge fund stocks returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.5% in 2021 through July 23rd but managed to beat the market again by 10.1 percentage points. Unfortunately KC wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was very bearish); KC investors were disappointed as the stock returned -29.6% since the end of the first quarter (through 7/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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