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Did Hedge Funds Make The Right Call On Westlake Chemical Corporation (WLK)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Westlake Chemical Corporation (NYSE:WLK) based on that data and determine whether they were really smart about the stock.

Is Westlake Chemical Corporation (NYSE:WLK) an outstanding stock to buy now? The best stock pickers were becoming less hopeful. The number of long hedge fund bets shrunk by 2 lately. Our calculations also showed that WLK 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.

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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

BRIDGEWATER ASSOCIATES

Ray Dalio of Bridgewater Associates

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world 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. With all of this in mind let’s take a gander at the latest hedge fund action encompassing Westlake Chemical Corporation (NYSE:WLK).

Hedge fund activity in Westlake Chemical Corporation (NYSE:WLK)

Heading into the second quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -9% from one quarter earlier. On the other hand, there were a total of 26 hedge funds with a bullish position in WLK a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Is WLK A Good Stock To Buy?

Of the funds tracked by Insider Monkey, Adage Capital Management, managed by Phill Gross and Robert Atchinson, holds the largest position in Westlake Chemical Corporation (NYSE:WLK). Adage Capital Management has a $46.2 million position in the stock, comprising 0.1% of its 13F portfolio. The second most bullish fund manager is Israel Englander of Millennium Management, with a $25.1 million position; 0.1% of its 13F portfolio is allocated to the stock. Some other peers that hold long positions encompass Ken Griffin’s Citadel Investment Group, Eric Sprott’s Sprott Asset Management and Dmitry Balyasny’s Balyasny Asset Management. In terms of the portfolio weights assigned to each position Appian Way Asset Management allocated the biggest weight to Westlake Chemical Corporation (NYSE:WLK), around 0.73% of its 13F portfolio. Sprott Asset Management is also relatively very bullish on the stock, dishing out 0.7 percent of its 13F equity portfolio to WLK.

Since Westlake Chemical Corporation (NYSE:WLK) has experienced a decline in interest from the smart money, we can see that there lies a certain “tier” of funds that slashed their full holdings heading into Q4. At the top of the heap, Lee Ainslie’s Maverick Capital dumped the largest position of the “upper crust” of funds tracked by Insider Monkey, comprising about $162.2 million in stock. Sara Nainzadeh’s fund, Centenus Global Management, also dumped its stock, about $4.6 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 2 funds heading into Q4.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Westlake Chemical Corporation (NYSE:WLK) but similarly valued. These stocks are Donaldson Company, Inc. (NYSE:DCI), Grupo Aval Acciones y Valores S.A. (NYSE:AVAL), SolarWinds Corporation (NYSE:SWI), and Hyatt Hotels Corporation (NYSE:H). This group of stocks’ market values are closest to WLK’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DCI 20 125557 -1
AVAL 5 10012 -2
SWI 14 2141429 -1
H 24 513510 -3
Average 15.75 697627 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $698 million. That figure was $111 million in WLK’s case. Hyatt Hotels Corporation (NYSE:H) is the most popular stock in this table. On the other hand Grupo Aval Acciones y Valores S.A. (NYSE:AVAL) is the least popular one with only 5 bullish hedge fund positions. Westlake Chemical Corporation (NYSE:WLK) is not the most popular stock in this group but hedge fund interest is still above average. 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 but still beat the market by 17.1 percentage points. Hedge funds were also right about betting on WLK as the stock returned 54.3% since Q1 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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