Did The Smart Money Play Westinghouse Air Brake Technologies Corporation (WAB) Correctly?

Technology stocks had a lousy start to 2022. QQQ lost 9% of its value in January. Pandemic winners are getting crushed while energy stocks are surging. Roblox lost 36%, Moderna lost 33%, and Carvana and Shopify lost 30% of their values in January. We aren’t certain about the bubbly technology stocks that trade for ridiculously high multiples of their revenues, but we believe top hedge fund stocks will deliver positive returns for the rest of the year. In this article, we will take a closer look at hedge fund sentiment towards Westinghouse Air Brake Technologies Corporation (NYSE:WAB) at the end of the third quarter and determine whether the smart money was really smart about this stock.

Westinghouse Air Brake Technologies Corporation (NYSE:WAB) was in 38 hedge funds’ portfolios at the end of September. The all time high for this statistic is 46. WAB has experienced a decrease in support from the world’s most elite money managers of late. There were 46 hedge funds in our database with WAB holdings at the end of June. Our calculations also showed that WAB isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind let’s analyze the recent hedge fund action encompassing Westinghouse Air Brake Technologies Corporation (NYSE:WAB).

Eric Mandelblatt Soroban Capital Partners

Eric Mandelblatt of Soroban Capital Partners

Do Hedge Funds Think WAB Is A Good Stock To Buy Now?

At third quarter’s end, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards WAB over the last 25 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Pzena Investment Management, managed by Richard S. Pzena, holds the largest position in Westinghouse Air Brake Technologies Corporation (NYSE:WAB). Pzena Investment Management has a $878.3 million position in the stock, comprising 3.5% of its 13F portfolio. Coming in second is Farallon Capital, with a $512.5 million position; 2.6% of its 13F portfolio is allocated to the stock. Some other peers that are bullish comprise Munir Javeri’s 3G Sahana Capital Management, Gaurav Kapadia’s XN Exponent Advisors and Eric W. Mandelblatt and Gaurav Kapadia’s Soroban Capital Partners. In terms of the portfolio weights assigned to each position 3G Sahana Capital Management allocated the biggest weight to Westinghouse Air Brake Technologies Corporation (NYSE:WAB), around 29.27% of its 13F portfolio. XN Exponent Advisors is also relatively very bullish on the stock, setting aside 11.44 percent of its 13F equity portfolio to WAB.

Because Westinghouse Air Brake Technologies Corporation (NYSE:WAB) has witnessed a decline in interest from the smart money, it’s easy to see that there were a few money managers who sold off their full holdings last quarter. At the top of the heap, Kerr Neilson’s Platinum Asset Management said goodbye to the largest position of the “upper crust” of funds monitored by Insider Monkey, worth about $105.7 million in stock. Clint Murray’s fund, Lodge Hill Capital, also dumped its stock, about $10.7 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 8 funds last quarter.

Let’s now review hedge fund activity in other stocks similar to Westinghouse Air Brake Technologies Corporation (NYSE:WAB). These stocks are Conagra Brands, Inc. (NYSE:CAG), Coupa Software Incorporated (NASDAQ:COUP), GoodRx Holdings, Inc. (NASDAQ:GDRX), 10x Genomics, Inc. (NASDAQ:TXG), MarketAxess Holdings Inc. (NASDAQ:MKTX), DLocal Limited (NASDAQ:DLO), and Repligen Corporation (NASDAQ:RGEN). This group of stocks’ market caps resemble WAB’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CAG 20 625323 -9
COUP 52 4542300 -2
GDRX 26 1063016 -2
TXG 28 963031 0
MKTX 29 730008 -2
DLO 19 480501 19
RGEN 35 1499835 0
Average 29.9 1414859 0.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.9 hedge funds with bullish positions and the average amount invested in these stocks was $1415 million. That figure was $2982 million in WAB’s case. Coupa Software Incorporated (NASDAQ:COUP) is the most popular stock in this table. On the other hand DLocal Limited (NASDAQ:DLO) is the least popular one with only 19 bullish hedge fund positions. Westinghouse Air Brake Technologies Corporation (NYSE:WAB) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for WAB is 50.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and still managed to beat the market by another 3.6 percentage points. Hedge funds were somewhat right about betting on WAB as the stock returned 3.2% since the end of September (through January 31st) and outperformed the top 5 hedge fund stocks but not the market. This is a rare phenomenon as top hedge fund stocks usually beat the market over the long-term.

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