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Did Hedge Funds Make The Right Call On WD-40 Company (WDFC) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards WD-40 Company (NASDAQ:WDFC) at the end of the first quarter and determine whether the smart money was really smart about this stock.

WD-40 Company (NASDAQ:WDFC) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 17 hedge funds’ portfolios at the end of March. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Livongo Health, Inc. (NASDAQ:LVGO), Cosan Limited (NYSE:CZZ), and Blackbaud, Inc. (NASDAQ:BLKB) to gather more data points. Our calculations also showed that WDFC isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

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 S&P 500 ETFs by 58 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.

Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let’s review the new hedge fund action encompassing WD-40 Company (NASDAQ:WDFC).

What have hedge funds been doing with WD-40 Company (NASDAQ:WDFC)?

At Q1’s end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards WDFC over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies, holds the largest position in WD-40 Company (NASDAQ:WDFC). Renaissance Technologies has a $72.8 million position in the stock, comprising 0.1% of its 13F portfolio. On Renaissance Technologies’s heels is VGI Partners, led by Robert M. P. Luciano, holding a $52.3 million position; the fund has 5.6% of its 13F portfolio invested in the stock. Some other members of the smart money that are bullish consist of Noam Gottesman’s GLG Partners, Israel Englander’s Millennium Management and David Harding’s Winton Capital Management. In terms of the portfolio weights assigned to each position VGI Partners allocated the biggest weight to WD-40 Company (NASDAQ:WDFC), around 5.63% of its 13F portfolio. Lyon Street Capital is also relatively very bullish on the stock, setting aside 1.6 percent of its 13F equity portfolio to WDFC.

Seeing as WD-40 Company (NASDAQ:WDFC) has experienced 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 elected to cut their full holdings by the end of the first quarter. Intriguingly, Minhua Zhang’s Weld Capital Management cut the largest stake of all the hedgies followed by Insider Monkey, comprising close to $1 million in stock, and Peter Muller’s PDT Partners was right behind this move, as the fund dropped about $0.3 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks similar to WD-40 Company (NASDAQ:WDFC). These stocks are Livongo Health, Inc. (NASDAQ:LVGO), Cosan Limited (NYSE:CZZ), Blackbaud, Inc. (NASDAQ:BLKB), and Sanderson Farms, Inc. (NASDAQ:SAFM). This group of stocks’ market caps are closest to WDFC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LVGO 17 82549 -1
CZZ 15 141907 3
BLKB 22 107618 6
SAFM 17 330385 -19
Average 17.75 165615 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $166 million. That figure was $200 million in WDFC’s case. Blackbaud, Inc. (NASDAQ:BLKB) is the most popular stock in this table. On the other hand Cosan Limited (NYSE:CZZ) is the least popular one with only 15 bullish hedge fund positions. WD-40 Company (NASDAQ:WDFC) 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. 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 18.6% in 2020 through July 27th and surpassed the market by 17.1 percentage points. Unfortunately WDFC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); WDFC investors were disappointed as the stock returned -6.7% since Q1 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 most of these stocks already outperformed the market in 2020.

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