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Hedge Fund Consensus Stocks vs. WABCO Holdings Inc. (WBC) In 2019

Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 57%. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 41.3% in 2019 and outperformed the broader market benchmark by 10.1 percentage points. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Is WABCO Holdings Inc. (NYSE:WBC) an attractive stock to buy now? The best stock pickers are taking a pessimistic view. The number of bullish hedge fund positions fell by 4 in recent months. Our calculations also showed that WBC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

Clint Carlson of Carlson Capital

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 read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. With all of this in mind we’re going to take a gander at the new hedge fund action regarding WABCO Holdings Inc. (NYSE:WBC).

How are hedge funds trading WABCO Holdings Inc. (NYSE:WBC)?

Heading into the fourth quarter of 2019, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of -12% from the previous quarter. The graph below displays the number of hedge funds with bullish position in WBC over the last 17 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Magnetar Capital was the largest shareholder of WABCO Holdings Inc. (NYSE:WBC), with a stake worth $197.6 million reported as of the end of September. Trailing Magnetar Capital was Citadel Investment Group, which amassed a stake valued at $178.2 million. Carlson Capital, Alpine Associates, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position White Square Capital allocated the biggest weight to WABCO Holdings Inc. (NYSE:WBC), around 20.91% of its 13F portfolio. Broad Bay Capital is also relatively very bullish on the stock, setting aside 7.04 percent of its 13F equity portfolio to WBC.

Due to the fact that WABCO Holdings Inc. (NYSE:WBC) has experienced a decline in interest from the smart money, we can see that there is a sect of hedge funds who sold off their positions entirely heading into Q4. At the top of the heap, James Dinan’s York Capital Management sold off the biggest stake of the “upper crust” of funds watched by Insider Monkey, totaling close to $59 million in stock. Nick Niell’s fund, Arrowgrass Capital Partners, also dropped its stock, about $42.2 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 4 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks similar to WABCO Holdings Inc. (NYSE:WBC). These stocks are Starwood Property Trust, Inc. (NYSE:STWD), Algonquin Power & Utilities Corp. (NYSE:AQN), Bruker Corporation (NASDAQ:BRKR), and MongoDB, Inc. (NASDAQ:MDB). This group of stocks’ market caps match WBC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
STWD 18 158291 4
AQN 15 211065 6
BRKR 21 272235 -6
MDB 29 526751 -5
Average 20.75 292086 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $292 million. That figure was $1218 million in WBC’s case. MongoDB, Inc. (NASDAQ:MDB) is the most popular stock in this table. On the other hand Algonquin Power & Utilities Corp. (NYSE:AQN) is the least popular one with only 15 bullish hedge fund positions. WABCO Holdings Inc. (NYSE:WBC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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. Unfortunately WBC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on WBC were disappointed as the stock returned 26.2% in 2019 and trailed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
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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