We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 835 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Welbilt, Inc. (NYSE:WBT), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
Welbilt, Inc. (NYSE:WBT) has experienced an increase in support from the world’s most elite money managers of late. WBT was in 28 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 27 hedge funds in our database with WBT holdings at the end of the previous quarter. Our calculations also showed that WBT isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 S&P 500 ETFs by more than 41 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. 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.
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. 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 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 peek at the key hedge fund action encompassing Welbilt, Inc. (NYSE:WBT).
Hedge fund activity in Welbilt, Inc. (NYSE:WBT)
At the end of the fourth quarter, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the previous quarter. The graph below displays the number of hedge funds with bullish position in WBT over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Ian Simm’s Impax Asset Management has the most valuable position in Welbilt, Inc. (NYSE:WBT), worth close to $175.2 million, amounting to 2% of its total 13F portfolio. Sitting at the No. 2 spot is Carl Icahn of Icahn Capital LP, with a $157.4 million position; the fund has 0.6% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish include Jeffrey Gates’s Gates Capital Management, Matt Sirovich and Jeremy Mindich’s Scopia Capital and Barry Dargan’s Intermede Investment Partners. In terms of the portfolio weights assigned to each position Manor Road Capital Partners allocated the biggest weight to Welbilt, Inc. (NYSE:WBT), around 4.18% of its 13F portfolio. Gates Capital Management is also relatively very bullish on the stock, setting aside 3.49 percent of its 13F equity portfolio to WBT.
As one would reasonably expect, specific money managers have jumped into Welbilt, Inc. (NYSE:WBT) headfirst. Tudor Investment Corp, managed by Paul Tudor Jones, initiated the most valuable position in Welbilt, Inc. (NYSE:WBT). Tudor Investment Corp had $1.6 million invested in the company at the end of the quarter. Mika Toikka’s AlphaCrest Capital Management also made a $0.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Jinghua Yan’s TwinBeech Capital, Qing Li’s Sciencast Management, and Michael Gelband’s ExodusPoint Capital.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Welbilt, Inc. (NYSE:WBT) but similarly valued. These stocks are Casella Waste Systems Inc. (NASDAQ:CWST), Synaptics Incorporated (NASDAQ:SYNA), AMC Networks Inc (NASDAQ:AMCX), and Beacon Roofing Supply, Inc. (NASDAQ:BECN). This group of stocks’ market values are similar to WBT’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $308 million. That figure was $582 million in WBT’s case. Synaptics Incorporated (NASDAQ:SYNA) is the most popular stock in this table. On the other hand Casella Waste Systems Inc. (NASDAQ:CWST) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Welbilt, Inc. (NYSE:WBT) is more popular among hedge funds. 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 13.0% in 2020 through April 6th and still beat the market by 4.2 percentage points. Unfortunately WBT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on WBT were disappointed as the stock returned -70.9% during the three months of 2020 (through April 6th) 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 most of these stocks already outperformed the market in 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.