Hedge funds run by legendary names like Nelson Peltz and David Tepper make billions of dollars a year for themselves and their super-rich accredited investors (you’ve got to have a minimum of $1 million liquid to invest in a hedge fund) by spending enormous resources on analyzing and uncovering data about small-cap stocks that the big brokerage houses don’t follow. Small caps are where they can generate significant outperformance. That’s why we pay special attention to hedge fund activity in these stocks.
Is Watsco Inc (NYSE:WSO) a marvelous investment now? Investors who are in the know are getting more bullish. The number of long hedge fund bets advanced by 4 in recent months. Our calculations also showed that WSO isn’t among the 30 most popular stocks among hedge funds. WSO was in 17 hedge funds’ portfolios at the end of the third quarter of 2018. There were 13 hedge funds in our database with WSO positions at the end of the previous quarter.
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 6.3% year to date (through December 3rd) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 18 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.
We’re going to take a peek at the latest hedge fund action surrounding Watsco Inc (NYSE:WSO).
How are hedge funds trading Watsco Inc (NYSE:WSO)?
Heading into the fourth quarter of 2018, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 31% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in WSO over the last 13 quarters. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
More specifically, Markel Gayner Asset Management was the largest shareholder of Watsco Inc (NYSE:WSO), with a stake worth $52 million reported as of the end of September. Trailing Markel Gayner Asset Management was Echo Street Capital Management, which amassed a stake valued at $40.2 million. Point72 Asset Management, Millennium Management, and GLG Partners were also very fond of the stock, giving the stock large weights in their portfolios.
Consequently, some big names were leading the bulls’ herd. Point72 Asset Management, managed by Steve Cohen, created the largest position in Watsco Inc (NYSE:WSO). Point72 Asset Management had $25.1 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $19.3 million investment in the stock during the quarter. The other funds with brand new WSO positions are Ilya Boroditsky’s Precision Path Capital and Jaime Sterne’s Skye Global Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Watsco Inc (NYSE:WSO) but similarly valued. These stocks are Randgold Resources Ltd. (NASDAQ:GOLD), Hanesbrands Inc. (NYSE:HBI), Amneal Pharmaceuticals, Inc. (NYSE:AMRX), and Aluminum Corp. of China Limited (NYSE:ACH). This group of stocks’ market values are similar to WSO’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| GOLD | 18 | 274444 | 7 |
| HBI | 18 | 550463 | -7 |
| AMRX | 11 | 177982 | -2 |
| ACH | 2 | 6554 | -1 |
| Average | 12.25 | 252361 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $252 million. That figure was $163 million in WSO’s case. Randgold Resources Ltd. (NASDAQ:GOLD) is the most popular stock in this table. On the other hand Aluminum Corp. of China Limited (NYSE:ACH) is the least popular one with only 2 bullish hedge fund positions. Watsco Inc (NYSE:WSO) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard GOLD might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
