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Hedge Funds Are Selling Weyerhaeuser Co. (WY)

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Weyerhaeuser Co. (NYSE:WY) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Is Weyerhaeuser Co. (NYSE:WY) a safe investment today? Hedge funds were taking a bearish view. The number of long hedge fund bets fell by 2 lately. Weyerhaeuser Co. (NYSE:WY) was in 33 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 37. Our calculations also showed that WY 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).

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Martin Whitman Third Avenue Management Marty Whitman

Martin Whitman of Third Avenue Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. Cannabis stocks are roaring back in 2020, which is why we are also checking out this under-the-radar stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind let’s take a look at the latest hedge fund action surrounding Weyerhaeuser Co. (NYSE:WY).

Hedge fund activity in Weyerhaeuser Co. (NYSE:WY)

At the end of June, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards WY over the last 20 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Citadel Investment Group held the most valuable stake in Weyerhaeuser Co. (NYSE:WY), which was worth $77.4 million at the end of the third quarter. On the second spot was Zimmer Partners which amassed $47.7 million worth of shares. Point72 Asset Management, Third Avenue Management, and Echo Street 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 Third Avenue Management allocated the biggest weight to Weyerhaeuser Co. (NYSE:WY), around 5.45% of its 13F portfolio. Sandbar Asset Management is also relatively very bullish on the stock, earmarking 2.23 percent of its 13F equity portfolio to WY.

Judging by the fact that Weyerhaeuser Co. (NYSE:WY) has witnessed falling interest from hedge fund managers, it’s easy to see that there lies a certain “tier” of funds who were dropping their entire stakes by the end of the second quarter. Interestingly, Ken Heebner’s Capital Growth Management cut the largest stake of the 750 funds tracked by Insider Monkey, valued at about $3.4 million in stock, and Mike Vranos’s Ellington was right behind this move, as the fund said goodbye to about $1.1 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 2 funds by the end of the second quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Weyerhaeuser Co. (NYSE:WY) but similarly valued. These stocks are CMS Energy Corporation (NYSE:CMS), West Pharmaceutical Services Inc. (NYSE:WST), Smith & Nephew plc (NYSE:SNN), China Unicom (Hong Kong) Limited (NYSE:CHU), CDW Corporation (NASDAQ:CDW), TransUnion (NYSE:TRU), and Northern Trust Corporation (NASDAQ:NTRS). All of these stocks’ market caps resemble WY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CMS 30 500702 2
WST 27 379097 0
SNN 12 90551 3
CHU 8 42706 2
CDW 40 1179993 4
TRU 47 1628502 3
NTRS 35 449745 8
Average 28.4 610185 3.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.4 hedge funds with bullish positions and the average amount invested in these stocks was $610 million. That figure was $401 million in WY’s case. TransUnion (NYSE:TRU) is the most popular stock in this table. On the other hand China Unicom (Hong Kong) Limited (NYSE:CHU) is the least popular one with only 8 bullish hedge fund positions. Weyerhaeuser Co. (NYSE:WY) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for WY is 61.8. 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. 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 33% in 2020 through the end of August and still beat the market by 23.2 percentage points. Hedge funds were also right about betting on WY as the stock returned 35% since Q2 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.