Hedge Funds Are Betting On Cactus, Inc. (WHD)

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 second 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 5 years and analyze what the smart money thinks of Cactus, Inc. (NYSE:WHD) based on that data and determine whether they were really smart about the stock.

Is Cactus, Inc. (NYSE:WHD) an excellent stock to buy now? The smart money was taking an optimistic view. The number of long hedge fund bets improved by 4 in recent months. Cactus, Inc. (NYSE:WHD) was in 22 hedge funds’ portfolios at the end of June. The all time high for this statistics is 27. Our calculations also showed that WHD isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 18 hedge funds in our database with WHD holdings at the end of March.

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 56 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.

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let’s take a gander at the key hedge fund action encompassing Cactus, Inc. (NYSE:WHD).

What does smart money think about Cactus, Inc. (NYSE:WHD)?

At the end of the second quarter, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 22% from one quarter earlier. By comparison, 24 hedge funds held shares or bullish call options in WHD a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is WHD A Good Stock To Buy?

More specifically, Encompass Capital Advisors was the largest shareholder of Cactus, Inc. (NYSE:WHD), with a stake worth $30.9 million reported as of the end of September. Trailing Encompass Capital Advisors was Citadel Investment Group, which amassed a stake valued at $23.3 million. Marshall Wace LLP, Deep Basin Capital, and Arosa Capital 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 Encompass Capital Advisors allocated the biggest weight to Cactus, Inc. (NYSE:WHD), around 4.11% of its 13F portfolio. Arosa Capital Management is also relatively very bullish on the stock, dishing out 1.99 percent of its 13F equity portfolio to WHD.

Consequently, some big names have jumped into Cactus, Inc. (NYSE:WHD) headfirst. Alyeska Investment Group, managed by Anand Parekh, assembled the most outsized position in Cactus, Inc. (NYSE:WHD). Alyeska Investment Group had $8.3 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also initiated a $4 million position during the quarter. The other funds with new positions in the stock are Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Peter Muller’s PDT Partners, and Donald Sussman’s Paloma Partners.

Let’s now take a look at hedge fund activity in other stocks similar to Cactus, Inc. (NYSE:WHD). We will take a look at WestAmerica Bancorp. (NASDAQ:WABC), Lions Gate Entertainment Corporation (NYSE:LGF-A), BioTelemetry, Inc. (NASDAQ:BEAT), USANA Health Sciences, Inc. (NYSE:USNA), Adient plc (NYSE:ADNT), Adaptimmune Therapeutics plc (NASDAQ:ADAP), and NIC Inc. (NASDAQ:EGOV). This group of stocks’ market valuations are similar to WHD’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WABC 12 29747 4
LGF-A 23 260345 0
BEAT 16 35163 4
USNA 19 214237 6
ADNT 35 341229 3
ADAP 19 831196 8
EGOV 16 108964 -1
Average 20 260126 3.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $260 million. That figure was $134 million in WHD’s case. Adient plc (NYSE:ADNT) is the most popular stock in this table. On the other hand WestAmerica Bancorp. (NASDAQ:WABC) is the least popular one with only 12 bullish hedge fund positions. Cactus, Inc. (NYSE:WHD) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for WHD is 55.2. 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. 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 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 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately WHD wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on WHD were disappointed as the stock returned -6.6% in Q3 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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