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Here is Hedge Funds’ 35th Top Stock Idea

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. Insider Monkey finished processing more than 730 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of June 28th, 2019. In this article we are going to take a look at smart money sentiment towards Wells Fargo & Company (NYSE:WFC).

Wells Fargo & Company (NYSE:WFC) investors should be aware of a decrease in hedge fund interest in recent months. WFC was in 65 hedge funds’ portfolios at the end of June. There were 73 hedge funds in our database with WFC holdings at the end of the previous quarter. Our calculations also showed that WFC ranked 35th among hedge funds and barely missed the cutoff for the 30 most popular stocks among hedge funds.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Boykin Curry EAGLE CAPITAL MANAGEMENT

Boykin Curry of Eagle Capital

Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to go over the recent hedge fund action regarding Wells Fargo & Company (NYSE:WFC).

Hedge fund activity in Wells Fargo & Company (NYSE:WFC)

At Q2’s end, a total of 65 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from one quarter earlier. On the other hand, there were a total of 73 hedge funds with a bullish position in WFC a year ago. With hedgies’ capital changing hands, there exists a few notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

No of Hedge Funds with WFC Positions

Among these funds, Berkshire Hathaway held the most valuable stake in Wells Fargo & Company (NYSE:WFC), which was worth $19391.9 million at the end of the second quarter. On the second spot was Eagle Capital Management which amassed $1325.9 million worth of shares. Moreover, Gardner Russo & Gardner, D E Shaw, and Theleme Partners were also bullish on Wells Fargo & Company (NYSE:WFC), allocating a large percentage of their portfolios to this stock.

Since Wells Fargo & Company (NYSE:WFC) has witnessed falling interest from hedge fund managers, logic holds that there is a sect of fund managers who sold off their entire stakes last quarter. Interestingly, Scott Bessent’s Key Square Capital Management cut the largest stake of the 750 funds monitored by Insider Monkey, valued at about $71.4 million in stock, and Joseph Samuels’s Islet Management was right behind this move, as the fund dropped about $29.2 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 8 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Wells Fargo & Company (NYSE:WFC). We will take a look at Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), Novartis AG (NYSE:NVS), The Boeing Company (NYSE:BA), and Oracle Corporation (NYSE:ORCL). This group of stocks’ market caps resemble WFC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TSM 42 4239857 3
NVS 30 1681993 -3
BA 74 5121698 3
ORCL 61 5536117 9
Average 51.75 4144916 3

View table here if you experience formatting issues.

As you can see these stocks had an average of 51.75 hedge funds with bullish positions and the average amount invested in these stocks was $4145 million. That figure was $25939 million in WFC’s case. The Boeing Company (NYSE:BA) is the most popular stock in this table. On the other hand Novartis AG (NYSE:NVS) is the least popular one with only 30 bullish hedge fund positions. Wells Fargo & Company (NYSE:WFC) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Even though some hedge funds sold out of the stock at the wrong time, overall hedge funds were also right about betting on WFC as the stock returned 7.8% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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