Hedge Funds Are Warming Up To Waste Connections, Inc. (WCN)

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. That’s a big deal.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Waste Connections, Inc. (NYSE:WCN) was in 29 hedge funds’ portfolios at the end of the third quarter of 2019. WCN has experienced an increase in enthusiasm from smart money recently. There were 26 hedge funds in our database with WCN holdings at the end of the previous quarter. Our calculations also showed that WCN 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.

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 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.

Blair Levinsky of Waratah Capital Advisors

Blair Levinsky of Waratah Capital Advisors

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. Let’s take a look at the recent hedge fund action regarding Waste Connections, Inc. (NYSE:WCN).

What have hedge funds been doing with Waste Connections, Inc. (NYSE:WCN)?

At Q3’s end, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 12% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in WCN over the last 17 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).


The largest stake in Waste Connections, Inc. (NYSE:WCN) was held by Renaissance Technologies, which reported holding $148 million worth of stock at the end of September. It was followed by Waratah Capital Advisors with a $111.6 million position. Other investors bullish on the company included Balyasny Asset Management, Osterweis Capital Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Waratah Capital Advisors allocated the biggest weight to Waste Connections, Inc. (NYSE:WCN), around 11.2% of its portfolio. SAYA Management is also relatively very bullish on the stock, dishing out 7.63 percent of its 13F equity portfolio to WCN.

Now, key money managers have jumped into Waste Connections, Inc. (NYSE:WCN) headfirst. Balyasny Asset Management, managed by Dmitry Balyasny, created the largest position in Waste Connections, Inc. (NYSE:WCN). Balyasny Asset Management had $33.3 million invested in the company at the end of the quarter. Curtis Schenker and Craig Effron’s Scoggin also made a $2.8 million investment in the stock during the quarter. The other funds with brand new WCN positions are Sander Gerber’s Hudson Bay Capital Management, Paul Marshall and Ian Wace’s Marshall Wace, and Renee Yao’s Neo Ivy Capital.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Waste Connections, Inc. (NYSE:WCN) but similarly valued. We will take a look at PACCAR Inc (NASDAQ:PCAR), Xilinx, Inc. (NASDAQ:XLNX), Ball Corporation (NYSE:BLL), and Baker Hughes, a GE company (NYSE:BHGE). This group of stocks’ market values are closest to WCN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PCAR 25 193757 -2
XLNX 38 1040263 -1
BLL 28 556069 1
BHGE 33 954876 15
Average 31 686241 3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 31 hedge funds with bullish positions and the average amount invested in these stocks was $686 million. That figure was $575 million in WCN’s case. Xilinx, Inc. (NASDAQ:XLNX) is the most popular stock in this table. On the other hand PACCAR Inc (NASDAQ:PCAR) is the least popular one with only 25 bullish hedge fund positions. Waste Connections, Inc. (NYSE:WCN) 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 WCN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); WCN investors were disappointed as the stock returned -1.4% 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.