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Did Hedge Funds Drop The Ball On Western Digital Corporation (WDC) ?

Hedge funds are not perfect. They have their bad picks just like everyone else. Facebook, a stock hedge funds have loved, lost nearly 40% of its value at one point in 2018. Although hedge funds are not perfect, their consensus picks do deliver solid returns, however. Our data show the top 15 S&P 500 stocks among hedge funds at the end of December 2018 yielded an average return of 19.7% year-to-date, vs. a gain of 13.1% for the S&P 500 Index. Because hedge funds have a lot of resources and their consensus picks do well, we pay attention to what they think. In this article, we analyze what the elite funds think of Western Digital Corporation (NASDAQ:WDC).

Western Digital Corporation (NASDAQ:WDC) has seen a decrease in hedge fund sentiment in recent months. WDC was in 25 hedge funds’ portfolios at the end of the fourth quarter of 2018. There were 33 hedge funds in our database with WDC positions at the end of the previous quarter. Our calculations also showed that WDC isn’t among the 30 most popular stocks among hedge funds.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 market by 32 percentage points since May 2014 through March 12, 2019 (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.

Harold Levy Iridian Asset Management

We’re going to take a look at the new hedge fund action surrounding Western Digital Corporation (NASDAQ:WDC).

How are hedge funds trading Western Digital Corporation (NASDAQ:WDC)?

At the end of the fourth quarter, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of -24% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in WDC over the last 14 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

WDC_mar2019

Among these funds, Iridian Asset Management held the most valuable stake in Western Digital Corporation (NASDAQ:WDC), which was worth $218.9 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $79.4 million worth of shares. Moreover, Citadel Investment Group, Renaissance Technologies, and D E Shaw were also bullish on Western Digital Corporation (NASDAQ:WDC), allocating a large percentage of their portfolios to this stock.

Due to the fact that Western Digital Corporation (NASDAQ:WDC) has experienced falling interest from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of hedge funds that elected to cut their full holdings last quarter. Intriguingly, Philippe Laffont’s Coatue Management said goodbye to the biggest stake of all the hedgies followed by Insider Monkey, valued at close to $45.5 million in call options. Noam Gottesman’s fund, GLG Partners, also dropped its call options, about $29.3 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 8 funds last quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Western Digital Corporation (NASDAQ:WDC) but similarly valued. We will take a look at Icahn Enterprises LP (NASDAQ:IEP), DexCom, Inc. (NASDAQ:DXCM), Marvell Technology Group Ltd. (NASDAQ:MRVL), and The J.M. Smucker Company (NYSE:SJM). This group of stocks’ market valuations are closest to WDC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IEP 6 10137794 2
DXCM 31 738361 1
MRVL 35 1328538 4
SJM 20 272592 -6
Average 23 3119321 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $3119 million. That figure was $566 million in WDC’s case. Marvell Technology Group Ltd. (NASDAQ:MRVL) is the most popular stock in this table. On the other hand Icahn Enterprises LP (NASDAQ:IEP) is the least popular one with only 6 bullish hedge fund positions. Western Digital Corporation (NASDAQ:WDC) 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. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Hedge funds were also right about betting on WDC as the stock returned 30.1% and outperformed the market as well. You can see the entire list of these shrewd hedge funds here.

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

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