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Is Genesee & Wyoming Inc (GWR) A Good Stock To Buy?

As we already know from media reports and hedge fund investor letters, many hedge funds lost money in October, blaming macroeconomic conditions and unpredictable events that hit several sectors, with healthcare among them. Nevertheless, most investors decided to stick to their bullish theses and their long-term focus allows us to profit from the recent declines. In particular, let’s take a look at what hedge funds think about Genesee & Wyoming Inc (NYSE:GWR) in this article.

Is Genesee & Wyoming Inc (NYSE:GWR) a buy right now? Investors who are in the know are turning less bullish. The number of long hedge fund positions were cut by 4 lately. Our calculations also showed that GWR isn’t among the 30 most popular stocks among hedge funds. GWR was in 11 hedge funds’ portfolios at the end of the third quarter of 2018. There were 15 hedge funds in our database with GWR holdings at the end of the previous quarter.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 18 percentage points since May 2014 through December 3, 2018 (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.

David Keidan of Buckingham Capital

Let’s view the latest hedge fund action surrounding Genesee & Wyoming Inc (NYSE:GWR).

How have hedgies been trading Genesee & Wyoming Inc (NYSE:GWR)?

At Q3’s end, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -27% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards GWR over the last 13 quarters. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

GWR_dec2018

When looking at the institutional investors followed by Insider Monkey, Cardinal Capital, managed by Amy Minella, holds the number one position in Genesee & Wyoming Inc (NYSE:GWR). Cardinal Capital has a $133.5 million position in the stock, comprising 4.2% of its 13F portfolio. Coming in second is Blue Harbour Group, led by Clifton S. Robbins, holding a $114 million position; 5.3% of its 13F portfolio is allocated to the stock. Some other members of the smart money with similar optimism include Edward Goodnow’s Goodnow Investment Group, David Keidan’s Buckingham Capital Management and Paul Reeder and Edward Shapiro’s PAR Capital Management.

Seeing as Genesee & Wyoming Inc (NYSE:GWR) has witnessed falling interest from the aggregate hedge fund industry, we can see that there exists a select few money managers that slashed their positions entirely last quarter. It’s worth mentioning that Steve Cohen’s Point72 Asset Management sold off the biggest investment of the “upper crust” of funds monitored by Insider Monkey, comprising close to $6.5 million in stock. Richard S. Meisenberg’s fund, ACK Asset Management, also said goodbye to its stock, about $5.4 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 4 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to Genesee & Wyoming Inc (NYSE:GWR). We will take a look at Brookfield Renewable Partners L.P. (NYSE:BEP), Proofpoint Inc (NASDAQ:PFPT), Grand Canyon Education Inc (NASDAQ:LOPE), and Medical Properties Trust, Inc. (NYSE:MPW). This group of stocks’ market values resemble GWR’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BEP 2 7451 0
PFPT 25 421514 -4
LOPE 24 299991 0
MPW 10 130682 0
Average 15.25 214910 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $215 million. That figure was $325 million in GWR’s case. Proofpoint Inc (NASDAQ:PFPT) is the most popular stock in this table. On the other hand Brookfield Renewable Partners L.P. (NYSE:BEP) is the least popular one with only 2 bullish hedge fund positions. Genesee & Wyoming Inc (NYSE:GWR) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard PFPT might be a better candidate to consider a long position.

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

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