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Do Hedge Funds Still Love 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.

Westlake Chemical Corporation (NYSE:WLK) has experienced a decrease in enthusiasm from smart money recently. WLK was in 20 hedge funds’ portfolios at the end of the first quarter of 2020. There were 22 hedge funds in our database with WLK holdings at the end of the previous quarter. 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.

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.

Steven Cohen

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a gander at the fresh hedge fund action regarding Westlake Chemical Corporation (NYSE:WLK).

How have hedgies been trading Westlake Chemical Corporation (NYSE:WLK)?

Heading into the second quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from the previous quarter. On the other hand, there were a total of 26 hedge funds with a bullish position in WLK a year ago. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

Is WLK A Good Stock To Buy?

The largest stake in Westlake Chemical Corporation (NYSE:WLK) was held by Adage Capital Management, which reported holding $46.2 million worth of stock at the end of September. It was followed by Millennium Management with a $25.1 million position. Other investors bullish on the company included Citadel Investment Group, Sprott Asset Management, and 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.

Seeing as Westlake Chemical Corporation (NYSE:WLK) has witnessed a decline in interest from the smart money, it’s easy to see that there lies a certain “tier” of hedge funds that slashed their positions entirely heading into Q4. At the top of the heap, Lee Ainslie’s Maverick Capital said goodbye to the biggest investment of the “upper crust” of funds followed by Insider Monkey, valued at close to $162.2 million in stock. Sara Nainzadeh’s fund, Centenus Global Management, also said goodbye to its stock, about $4.6 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 2 funds heading into Q4.

Let’s also examine 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 similar 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 12.2% in 2020 through June 17th but still beat the market by 14.8 percentage points. Hedge funds were also right about betting on WLK as the stock returned 42.9% in Q2 (through June 17th) 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.