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Do Hedge Funds Love Casella Waste Systems Inc. (CWST)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. Keeping this in mind, let’s take a look at whether Casella Waste Systems Inc. (NASDAQ:CWST) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Casella Waste Systems Inc. (NASDAQ:CWST) shareholders have witnessed a decrease in support from the world’s most elite money managers lately. CWST was in 10 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 12 hedge funds in our database with CWST positions at the end of the previous quarter. Our calculations also showed that CWST isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

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 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 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.

Mario Gabelli of GAMCO Investors

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a gander at the new hedge fund action surrounding Casella Waste Systems Inc. (NASDAQ:CWST).

How are hedge funds trading Casella Waste Systems Inc. (NASDAQ:CWST)?

At the end of the fourth quarter, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the third quarter of 2019. On the other hand, there were a total of 18 hedge funds with a bullish position in CWST a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Renaissance Technologies, holds the largest position in Casella Waste Systems Inc. (NASDAQ:CWST). Renaissance Technologies has a $116.6 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is Portolan Capital Management, led by George McCabe, holding a $15 million position; 1.5% of its 13F portfolio is allocated to the stock. Remaining professional money managers with similar optimism contain John Overdeck and David Siegel’s Two Sigma Advisors, Mario Gabelli’s GAMCO Investors and Richard Driehaus’s Driehaus Capital. In terms of the portfolio weights assigned to each position Portolan Capital Management allocated the biggest weight to Casella Waste Systems Inc. (NASDAQ:CWST), around 1.52% of its 13F portfolio. Skylands Capital is also relatively very bullish on the stock, earmarking 0.53 percent of its 13F equity portfolio to CWST.

Since Casella Waste Systems Inc. (NASDAQ:CWST) has faced a decline in interest from hedge fund managers, it’s safe to say that there was a specific group of hedge funds who sold off their entire stakes by the end of the third quarter. Intriguingly, David Harding’s Winton Capital Management said goodbye to the biggest position of the “upper crust” of funds tracked by Insider Monkey, totaling close to $0.6 million in call options, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund dropped about $0.5 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 2 funds by the end of the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Casella Waste Systems Inc. (NASDAQ:CWST) but similarly valued. We will take a look at Synaptics Incorporated (NASDAQ:SYNA), AMC Networks Inc (NASDAQ:AMCX), Beacon Roofing Supply, Inc. (NASDAQ:BECN), and Bed Bath & Beyond Inc. (NASDAQ:BBBY). This group of stocks’ market caps match CWST’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SYNA 26 487175 5
AMCX 25 231649 1
BECN 22 346853 -1
BBBY 34 484497 7
Average 26.75 387544 3

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.75 hedge funds with bullish positions and the average amount invested in these stocks was $388 million. That figure was $165 million in CWST’s case. Bed Bath & Beyond Inc. (NASDAQ:BBBY) is the most popular stock in this table. On the other hand Beacon Roofing Supply, Inc. (NASDAQ:BECN) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Casella Waste Systems Inc. (NASDAQ:CWST) is even less popular than BECN. Hedge funds clearly dropped the ball on CWST as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but still beat the market by 4.2 percentage points. A small number of hedge funds were also right about betting on CWST as the stock returned -7.3% during the same time period and outperformed the market by an even larger margin.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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