How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Western Midstream Partners, LP (NYSE:WES).
Is WES a good stock to buy now? Western Midstream Partners, LP (NYSE:WES) has seen a decrease in activity from the world’s largest hedge funds recently. Western Midstream Partners, LP (NYSE:WES) was in 10 hedge funds’ portfolios at the end of September. The all time high for this statistics is 13. Our calculations also showed that WES isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
To most shareholders, hedge funds are viewed as unimportant, old investment vehicles of the past. While there are over 8000 funds with their doors open at present, Our experts choose to focus on the leaders of this club, around 850 funds. These money managers manage the lion’s share of all hedge funds’ total capital, and by watching their top stock picks, Insider Monkey has unsheathed a few investment strategies that have historically outperformed Mr. Market. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. 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. Keeping this in mind let’s go over the fresh hedge fund action encompassing Western Midstream Partners, LP (NYSE:WES).
Do Hedge Funds Think WES Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards WES over the last 21 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Zimmer Partners, managed by Stuart J. Zimmer, holds the largest position in Western Midstream Partners, LP (NYSE:WES). Zimmer Partners has a $26.3 million position in the stock, comprising 0.4% of its 13F portfolio. Sitting at the No. 2 spot is Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $15.9 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining peers that are bullish encompass Jerome L. Simon’s Lonestar Capital Management, David Tepper’s Appaloosa Management LP and Bruce Berkowitz’s Fairholme (FAIRX). In terms of the portfolio weights assigned to each position Heronetta Management allocated the biggest weight to Western Midstream Partners, LP (NYSE:WES), around 2.66% of its 13F portfolio. Lonestar Capital Management is also relatively very bullish on the stock, dishing out 1.36 percent of its 13F equity portfolio to WES.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Citadel Investment Group. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified WES as a viable investment and initiated a position in the stock.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Western Midstream Partners, LP (NYSE:WES) but similarly valued. We will take a look at frontdoor, inc. (NASDAQ:FTDR), Scientific Games Corp (NASDAQ:SGMS), Ardagh Group S.A. (NYSE:ARD), I-Mab (NASDAQ:IMAB), Louisiana-Pacific Corporation (NYSE:LPX), Power Integrations Inc (NASDAQ:POWI), and Companhia Brasileira de Distrib. (NYSE:CBD). This group of stocks’ market valuations are closest to WES’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.1 hedge funds with bullish positions and the average amount invested in these stocks was $366 million. That figure was $66 million in WES’s case. Louisiana-Pacific Corporation (NYSE:LPX) is the most popular stock in this table. On the other hand Ardagh Group S.A. (NYSE:ARD) is the least popular one with only 7 bullish hedge fund positions. Western Midstream Partners, LP (NYSE:WES) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for WES is 31.6. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on WES as the stock returned 99.4% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.