Is WESCO International, Inc. (WCC) A Good Stock To Buy?

Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ a complex analysis to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we follow the hedge fund activity in the small-cap space.

WESCO International, Inc. (NYSE:WCC) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 22 hedge funds’ portfolios at the end of September. At the end of this article we will also compare WCC to other stocks including Armstrong World Industries, Inc. (NYSE:AWI), Zynga Inc (NASDAQ:ZNGA), and Retail Opportunity Investments Corp (NASDAQ:ROIC) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

With all of this in mind, let’s go over the recent action encompassing WESCO International, Inc. (NYSE:WCC).

What have hedge funds been doing with WESCO International, Inc. (NYSE:WCC)?

At the end of the third quarter, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, unchanged from the second quarter of 2016. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Polaris Capital Management, run by Bernard Horn, holds the largest position in WESCO International, Inc. (NYSE:WCC). According to regulatory filings, the fund has a $28.6 million position in the stock, comprising 2.2% of its 13F portfolio. Sitting at the No. 2 spot is Basswood Capital, managed by Matthew Lindenbaum, which holds a $21 million position; 1% of its 13F portfolio is allocated to the company. Other hedge funds and institutional investors that hold long positions include Alexander Mitchell’s Scopus Asset Management, John Overdeck and David Siegel’s Two Sigma Advisors and William Harnisch’s Peconic Partners LLC.

Judging by the fact that WESCO International, Inc. (NYSE:WCC) has witnessed falling interest from the entirety of the hedge funds we track, it’s easy to see that there exists a select few fund managers that decided to sell off their positions entirely by the end of the third quarter. At the top of the heap, Steve Cohen’s Point72 Asset Management dumped the largest position of the 700 funds monitored by Insider Monkey, worth close to $40.6 million in stock, and Phill Gross and Robert Atchinson’s Adage Capital Management was right behind this move, as the fund said goodbye to about $20.7 million worth of WCC shares. These bearish behaviors are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as WESCO International, Inc. (NYSE:WCC) but similarly valued. These stocks are Armstrong World Industries, Inc. (NYSE:AWI), Zynga Inc (NASDAQ:ZNGA), Retail Opportunity Investments Corp (NASDAQ:ROIC), and Core-Mark Holding Company, Inc. (NASDAQ:CORE). This group of stocks’ market caps resemble WCC’s market cap.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $456 million. That figure was $120 million in WCC’s case. Zynga Inc (NASDAQ:ZNGA) is the most popular stock in this table. On the other hand Retail Opportunity Investments Corp (NASDAQ:ROIC) is the least popular one with only 8 bullish hedge fund positions. WESCO International, Inc. (NYSE:WCC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard ZNGA might be a better candidate to consider a long position.

Disclosure: none.