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Is W.W. Grainger, Inc. (GWW) A Good Stock To Buy?

The 700+ hedge funds and money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the second quarter, which unveil their equity positions as of September 30. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund positions. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards W.W. Grainger, Inc. (NYSE:GWW).

W.W. Grainger, Inc. (NYSE:GWW) shareholders have witnessed an increase in hedge fund sentiment lately. GWW was in 30 hedge funds’ portfolios at the end of the third quarter of 2018. There were 23 hedge funds in our database with GWW positions at the end of the previous quarter. Our calculations also showed that GWW isn’t among the 30 most popular stocks among hedge funds.

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.

AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital Management

Let’s check out the key hedge fund action surrounding W.W. Grainger, Inc. (NYSE:GWW).

Hedge fund activity in W.W. Grainger, Inc. (NYSE:GWW)

At Q3’s end, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 30% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards GWW over the last 13 quarters. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

GWW_dec2018

More specifically, AQR Capital Management was the largest shareholder of W.W. Grainger, Inc. (NYSE:GWW), with a stake worth $142.3 million reported as of the end of September. Trailing AQR Capital Management was Millennium Management, which amassed a stake valued at $113.4 million. Renaissance Technologies, Two Sigma Advisors, and Citadel Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.

Consequently, key money managers have jumped into W.W. Grainger, Inc. (NYSE:GWW) headfirst. Navellier & Associates, managed by Louis Navellier, assembled the most outsized position in W.W. Grainger, Inc. (NYSE:GWW). Navellier & Associates had $3.2 million invested in the company at the end of the quarter. Karim Abbadi and Edward McBride’s Centiva Capital also made a $1.6 million investment in the stock during the quarter. The other funds with new positions in the stock are David Costen Haley’s HBK Investments, Nick Thakore’s Diametric Capital, and Alec Litowitz and Ross Laser’s Magnetar Capital.

Let’s now review hedge fund activity in other stocks similar to W.W. Grainger, Inc. (NYSE:GWW). We will take a look at AutoZone, Inc. (NYSE:AZO), AmerisourceBergen Corporation (NYSE:ABC), Arista Networks Inc (NYSE:ANET), and Harris Corporation (NYSE:HRS). This group of stocks’ market caps are similar to GWW’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AZO 30 920242 -2
ABC 32 608745 -4
ANET 22 574815 0
HRS 27 530950 2
Average 27.75 658688 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.75 hedge funds with bullish positions and the average amount invested in these stocks was $659 million. That figure was $618 million in GWW’s case. AmerisourceBergen Corporation (NYSE:ABC) is the most popular stock in this table. On the other hand Arista Networks Inc (NYSE:ANET) is the least popular one with only 22 bullish hedge fund positions. W.W. Grainger, Inc. (NYSE:GWW) 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 ABC might be a better candidate to consider a long position.

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

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