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Is Casella Waste Systems Inc. (CWST) A Good Stock To Buy?

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 Casella Waste Systems Inc. (NASDAQ:CWST).

Casella Waste Systems Inc. (NASDAQ:CWST) was in 12 hedge funds’ portfolios at the end of June. CWST investors should pay attention to a decrease in activity from the world’s largest hedge funds of late. There were 14 hedge funds in our database with CWST positions at the end of the previous quarter. Our calculations also showed that CWST isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.

Richard Driehaus

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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. Let’s go over the recent hedge fund action surrounding Casella Waste Systems Inc. (NASDAQ:CWST).

Hedge fund activity in Casella Waste Systems Inc. (NASDAQ:CWST)

At the end of the second quarter, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from one quarter earlier. By comparison, 15 hedge funds held shares or bullish call options in CWST a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with CWST Positions

More specifically, Renaissance Technologies was the largest shareholder of Casella Waste Systems Inc. (NASDAQ:CWST), with a stake worth $120.4 million reported as of the end of March. Trailing Renaissance Technologies was Two Sigma Advisors, which amassed a stake valued at $12.5 million. Portolan Capital Management, Driehaus Capital, and GAMCO Investors were also very fond of the stock, giving the stock large weights in their portfolios.

Since Casella Waste Systems Inc. (NASDAQ:CWST) has witnessed falling interest from the smart money, it’s easy to see that there is a sect of hedgies that elected to cut their entire stakes by the end of the second quarter. Interestingly, Ian Simm’s Impax Asset Management dumped the largest position of the 750 funds monitored by Insider Monkey, comprising about $4.8 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund cut about $4.6 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 2 funds by the end of the second quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Casella Waste Systems Inc. (NASDAQ:CWST) but similarly valued. We will take a look at Tronox Holdings plc (NYSE:TROX), Focus Financial Partners Inc. (NASDAQ:FOCS), iRhythm Technologies, Inc. (NASDAQ:IRTC), and Allscripts Healthcare Solutions Inc (NASDAQ:MDRX). This group of stocks’ market caps match CWST’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TROX 20 174636 -4
FOCS 9 38089 4
IRTC 16 295163 -8
MDRX 18 219405 -3
Average 15.75 181823 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.75 hedge funds with bullish positions and the average amount invested in these stocks was $182 million. That figure was $174 million in CWST’s case. Tronox Holdings plc (NYSE:TROX) is the most popular stock in this table. On the other hand Focus Financial Partners Inc. (NASDAQ:FOCS) is the least popular one with only 9 bullish hedge fund positions. Casella Waste Systems Inc. (NASDAQ:CWST) is not the least popular stock in this group but hedge fund interest is still below 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. A small number of hedge funds were also right about betting on CWST as the stock returned 8.4% during the same time frame and outperformed the market by an even larger margin.

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

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