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Hedge Funds Are Dumping Waters Corporation (WAT)

Is Waters Corporation (NYSE:WAT) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Waters Corporation (NYSE:WAT) has experienced a decrease in activity from the world’s largest hedge funds lately. WAT was in 25 hedge funds’ portfolios at the end of the third quarter of 2019. There were 26 hedge funds in our database with WAT holdings at the end of the previous quarter. Our calculations also showed that WAT isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 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.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to review the new hedge fund action encompassing Waters Corporation (NYSE:WAT).

What have hedge funds been doing with Waters Corporation (NYSE:WAT)?

At the end of the third quarter, a total of 25 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from one quarter earlier. By comparison, 23 hedge funds held shares or bullish call options in WAT a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

WAT_dec2019

The largest stake in Waters Corporation (NYSE:WAT) was held by GLG Partners, which reported holding $99 million worth of stock at the end of September. It was followed by Select Equity Group with a $96.5 million position. Other investors bullish on the company included Impax Asset Management, Generation Investment Management, and D E Shaw. In terms of the portfolio weights assigned to each position Impax Asset Management allocated the biggest weight to Waters Corporation (NYSE:WAT), around 1.18% of its portfolio. Select Equity Group is also relatively very bullish on the stock, dishing out 0.65 percent of its 13F equity portfolio to WAT.

Judging by the fact that Waters Corporation (NYSE:WAT) has experienced a decline in interest from hedge fund managers, it’s safe to say that there exists a select few funds who were dropping their positions entirely heading into Q4. It’s worth mentioning that Dmitry Balyasny’s Balyasny Asset Management cut the largest stake of the “upper crust” of funds monitored by Insider Monkey, totaling an estimated $3.1 million in call options, and Matthew Hulsizer’s PEAK6 Capital Management was right behind this move, as the fund dropped about $1.1 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 1 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Waters Corporation (NYSE:WAT) but similarly valued. We will take a look at Mid America Apartment Communities Inc (NYSE:MAA), Huntington Bancshares Incorporated (NASDAQ:HBAN), Ulta Beauty, Inc. (NASDAQ:ULTA), and The Cooper Companies, Inc. (NYSE:COO). All of these stocks’ market caps resemble WAT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MAA 17 298982 4
HBAN 20 96244 -3
ULTA 39 900250 -5
COO 27 741670 -1
Average 25.75 509287 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $509 million. That figure was $595 million in WAT’s case. Ulta Beauty, Inc. (NASDAQ:ULTA) is the most popular stock in this table. On the other hand Mid America Apartment Communities Inc (NYSE:MAA) is the least popular one with only 17 bullish hedge fund positions. Waters Corporation (NYSE:WAT) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately WAT wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); WAT investors were disappointed as the stock returned -0.5% during the first two months of the fourth quarter 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 70 percent of these stocks already outperformed the market in Q4.

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

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