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

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. In this article we look at what those investors think of Cactus, Inc. (NYSE:WHD).

Cactus, Inc. (NYSE:WHD) was in 18 hedge funds’ portfolios at the end of March. WHD investors should be aware of an increase in support from the world’s most elite money managers in recent months. There were 17 hedge funds in our database with WHD holdings at the end of the previous quarter. Our calculations also showed that WHD 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.

Thomas Bancroft - Makaira Partners

Thomas Bancroft of Makaira Partners

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 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. With all of this in mind we’re going to take a look at the fresh hedge fund action surrounding Cactus, Inc. (NYSE:WHD).

How are hedge funds trading Cactus, Inc. (NYSE:WHD)?

At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the fourth quarter of 2019. On the other hand, there were a total of 27 hedge funds with a bullish position in WHD a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

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 $22.8 million reported as of the end of September. Trailing Encompass Capital Advisors was Deep Basin Capital, which amassed a stake valued at $18.4 million. Arosa Capital Management, Citadel Investment Group, and Adage 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 Deep Basin Capital allocated the biggest weight to Cactus, Inc. (NYSE:WHD), around 4.68% of its 13F portfolio. Encompass Capital Advisors is also relatively very bullish on the stock, setting aside 2.44 percent of its 13F equity portfolio to WHD.

As aggregate interest increased, key money managers were leading the bulls’ herd. Makaira Partners, managed by Thomas Bancroft, assembled the largest position in Cactus, Inc. (NYSE:WHD). Makaira Partners had $1.7 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also made a $0.4 million investment in the stock during the quarter. The only other fund with a new position in the stock is Greg Eisner’s Engineers Gate Manager.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Cactus, Inc. (NYSE:WHD) but similarly valued. We will take a look at Office Depot Inc (NYSE:ODP), Scholastic Corp (NASDAQ:SCHL), Axonics Modulation Technologies, Inc. (NASDAQ:AXNX), and Stratasys, Ltd. (NASDAQ:SSYS). This group of stocks’ market values match WHD’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ODP 17 70351 1
SCHL 11 44442 -4
AXNX 22 282163 -1
SSYS 14 60722 -4
Average 16 114420 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $114 million. That figure was $99 million in WHD’s case. Axonics Modulation Technologies, Inc. (NASDAQ:AXNX) is the most popular stock in this table. On the other hand Scholastic Corp (NASDAQ:SCHL) is the least popular one with only 11 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 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 13.4% in 2020 through June 22nd but still beat the market by 15.9 percentage points. Hedge funds were also right about betting on WHD as the stock returned 73% in Q2 (through June 22nd) 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.