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Is Advanced Disposal Services, Inc. (ADSW) A Good Stock To Buy?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Advanced Disposal Services, Inc. (NYSE:ADSW) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

Is Advanced Disposal Services, Inc. (NYSE:ADSW) worth your attention right now? Hedge funds were taking a bullish view. The number of long hedge fund bets inched up by 4 recently. Advanced Disposal Services, Inc. (NYSE:ADSW) was in 25 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 26. Our calculations also showed that ADSW 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). There were 21 hedge funds in our database with ADSW positions at the end of the first quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 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 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.

TUDOR INVESTMENT CORP

Paul Tudor Jones of Tudor Investment Corp

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let’s review the latest hedge fund action surrounding Advanced Disposal Services, Inc. (NYSE:ADSW).

How have hedgies been trading Advanced Disposal Services, Inc. (NYSE:ADSW)?

At the end of June, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 19% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ADSW over the last 20 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

Is ADSW A Good Stock To Buy?

Among these funds, Renaissance Technologies held the most valuable stake in Advanced Disposal Services, Inc. (NYSE:ADSW), which was worth $200 million at the end of the third quarter. On the second spot was Alpine Associates which amassed $140.4 million worth of shares. Magnetar Capital, Pentwater Capital Management, and Water Island Capital 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 Halcyon Asset Management allocated the biggest weight to Advanced Disposal Services, Inc. (NYSE:ADSW), around 11.71% of its 13F portfolio. Alpine Associates is also relatively very bullish on the stock, designating 8.08 percent of its 13F equity portfolio to ADSW.

As one would reasonably expect, specific money managers have been driving this bullishness. Water Island Capital, managed by John Orrico, assembled the most valuable position in Advanced Disposal Services, Inc. (NYSE:ADSW). Water Island Capital had $52 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also initiated a $43.8 million position during the quarter. The following funds were also among the new ADSW investors: Michael Hintze’s CQS Cayman LP, Steven Clark’s Omni Partners, and Carl Tiedemann and Michael Tiedemann’s TIG Advisors.

Let’s now review hedge fund activity in other stocks similar to Advanced Disposal Services, Inc. (NYSE:ADSW). We will take a look at BlackBerry Limited (NYSE:BB), FireEye Inc (NASDAQ:FEYE), National Health Investors Inc (NYSE:NHI), WD-40 Company (NASDAQ:WDFC), Companhia Siderurgica Nacional (NYSE:SID), Element Solutions Inc. (NYSE:ESI), and 21Vianet Group Inc (NASDAQ:VNET). This group of stocks’ market valuations match ADSW’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BB 22 347261 0
FEYE 28 256703 -4
NHI 15 94170 2
WDFC 15 187292 -2
SID 7 9332 2
ESI 37 411986 2
VNET 19 266431 4
Average 20.4 224739 0.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.4 hedge funds with bullish positions and the average amount invested in these stocks was $225 million. That figure was $720 million in ADSW’s case. Element Solutions Inc. (NYSE:ESI) is the most popular stock in this table. On the other hand Companhia Siderurgica Nacional (NYSE:SID) is the least popular one with only 7 bullish hedge fund positions. Advanced Disposal Services, Inc. (NYSE:ADSW) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ADSW is 67.8. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 21.3% in 2020 through September 25th and beat the market by 17.7 percentage points. Unfortunately ADSW wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on ADSW were disappointed as the stock returned 0.1% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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