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Hedge Funds Bought Western Digital Corporation (WDC) At The Wrong Time

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published this article and predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. At Insider Monkey, we pore over the filings of nearly 835 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not Western Digital Corporation (NASDAQ:WDC) makes for a good investment right now.

Western Digital Corporation (NASDAQ:WDC) investors should pay attention to an increase in hedge fund interest recently. Our calculations also showed that WDC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the eyes of most shareholders, hedge funds are viewed as underperforming, outdated financial vehicles of yesteryear. While there are greater than 8000 funds in operation at present, Our researchers look at the bigwigs of this group, approximately 850 funds. It is estimated that this group of investors shepherd the lion’s share of the hedge fund industry’s total asset base, and by following their finest investments, Insider Monkey has revealed numerous investment strategies that have historically outpaced Mr. Market. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

CITADEL INVESTMENT GROUP

Ken Griffin of Citadel Investment Group

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, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. With all of this in mind we’re going to take a gander at the new hedge fund action regarding Western Digital Corporation (NASDAQ:WDC).

What does smart money think about Western Digital Corporation (NASDAQ:WDC)?

At the end of the fourth quarter, a total of 49 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 23% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in WDC over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

Is WDC A Good Stock To Buy?

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Andrew Wellington and Jeff Keswin’s Lyrical Asset Management has the number one position in Western Digital Corporation (NASDAQ:WDC), worth close to $292 million, comprising 4% of its total 13F portfolio. On Lyrical Asset Management’s heels is Ken Griffin of Citadel Investment Group, with a $123.1 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining members of the smart money with similar optimism contain Ken Griffin’s Citadel Investment Group, and David Cohen and Harold Levy’s Iridian Asset Management. In terms of the portfolio weights assigned to each position Tegean Capital Management allocated the biggest weight to Western Digital Corporation (NASDAQ:WDC), around 18.95% of its 13F portfolio. AlphaOne Capital Partners is also relatively very bullish on the stock, setting aside 5.49 percent of its 13F equity portfolio to WDC.

Now, specific money managers have jumped into Western Digital Corporation (NASDAQ:WDC) headfirst. Maverick Capital, managed by Lee Ainslie, established the most outsized position in Western Digital Corporation (NASDAQ:WDC). Maverick Capital had $39.4 million invested in the company at the end of the quarter. John Hurley’s Cavalry Asset Management also initiated a $26.3 million position during the quarter. The other funds with brand new WDC positions are Peter S. Park’s Park West Asset Management, Ken Heebner’s Capital Growth Management, and George McCabe’s Portolan Capital Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Western Digital Corporation (NASDAQ:WDC) but similarly valued. We will take a look at Zoom Video Communications, Inc. (NASDAQ:ZM), Incyte Corporation (NASDAQ:INCY), Sea Limited (NYSE:SE), and Alexandria Real Estate Equities Inc (NYSE:ARE). All of these stocks’ market caps are similar to WDC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ZM 28 858177 -5
INCY 46 3965633 11
SE 76 3911536 7
ARE 21 297129 -4
Average 42.75 2258119 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 42.75 hedge funds with bullish positions and the average amount invested in these stocks was $2258 million. That figure was $870 million in WDC’s case. Sea Limited (NYSE:SE) is the most popular stock in this table. On the other hand Alexandria Real Estate Equities Inc (NYSE:ARE) is the least popular one with only 21 bullish hedge fund positions. Western Digital Corporation (NASDAQ:WDC) 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. These stocks lost 12.9% in 2020 through March 9th but beat the market by 1.9 percentage points. Unfortunately WDC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on WDC were disappointed as the stock returned -24.7% during the same time period and underperformed 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.

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

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