Should You Follow Hedge Funds Out of Republic Services, Inc. (RSG)?

Is Republic Services, Inc. (NYSE:RSG) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before doing days of research on it. Given their 2 and 20 payment structure, hedge funds have more resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also have numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments. More recently the top 30 mid-cap stocks (market caps between $1 billion and $10 billion) among hedge funds delivered an average return of 18% during the last four quarters (S&P 500 Index funds returned only 7.6% during the same period).

Is Republic Services, Inc. (NYSE:RSG) ready to rally soon? The best stock pickers are in a bearish mood. The number of bullish hedge fund positions decreased by 4 in recent months. At the end of this article we will also compare RSG to other stocks including Under Armour Inc (NYSE:UA), Hartford Financial Services Group Inc (NYSE:HIG), and International Paper Company (NYSE:IP) 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.

How are hedge funds trading Republic Services, Inc. (NYSE:RSG)?

At the end of the third quarter, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a 16% drop from one quarter earlier. Hedge fund ownership of the stock has now fallen by 27% in the last year. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, AQR Capital Management, managed by Cliff Asness, holds the biggest position in Republic Services, Inc. (NYSE:RSG). AQR Capital Management has a $181.8 million position in the stock. On AQR Capital Management’s heels is GAMCO Investors, led by Mario Gabelli, holding a $143.1 million position. Some other professional money managers that hold long positions contain Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, D E Shaw, and David Harding’s Winton Capital Management.

Because Republic Services, Inc. (NYSE:RSG) has faced declining sentiment from the smart money, it’s safe to say that there was a specific group of money managers who sold off their positions entirely by the end of the third quarter. Interestingly, Jim Simons’ Renaissance Technologies sold off the largest investment of the “upper crust” of funds watched by Insider Monkey, comprising close to $20.8 million in stock, and George Hall’s Clinton Group was right behind this move, as the fund dropped about $2.3 million worth of shares. These moves are intriguing to say the least, as total hedge fund interest fell by 4 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Republic Services, Inc. (NYSE:RSG). These stocks are Under Armour Inc (NYSE:UA), Hartford Financial Services Group Inc (NYSE:HIG), International Paper Company (NYSE:IP), and Realty Income Corp (NYSE:O). This group of stocks’ market valuations are similar to RSG’s market valuation.

As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $549 million. That figure was $485 million in RSG’s case. Hartford Financial Services Group Inc (NYSE:HIG) is the most popular stock in this table. On the other hand Realty Income Corp (NYSE:O) is the least popular one with only 20 bullish hedge fund positions. Republic Services, Inc. (NYSE:RSG) 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. In this regard HIG might be a better candidate to consider a long position in.

Disclosure: None