In this article we are going to use hedge fund sentiment as a tool and determine whether Cactus, Inc. (NYSE:WHD) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is WHD a good stock to buy now? The best stock pickers were becoming less confident. The number of bullish hedge fund positions fell by 2 recently. Cactus, Inc. (NYSE:WHD) was in 20 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 27. Our calculations also showed that WHD 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.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
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 15 best blue chip stocks 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. Now we’re going to review the key hedge fund action regarding Cactus, Inc. (NYSE:WHD).
Do Hedge Funds Think WHD Is A Good Stock To Buy Now?
At Q3’s end, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -9% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards WHD over the last 21 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Encompass Capital Advisors, managed by Todd J. Kantor, holds the most valuable position in Cactus, Inc. (NYSE:WHD). Encompass Capital Advisors has a $26.5 million position in the stock, comprising 2.4% of its 13F portfolio. The second largest stake is held by Deep Basin Capital, led by Matt Smith, holding a $19.6 million position; the fund has 2.4% of its 13F portfolio invested in the stock. Some other peers with similar optimism contain Ken Griffin’s Citadel Investment Group, Paul Marshall and Ian Wace’s Marshall Wace LLP and Phill Gross and Robert Atchinson’s Adage Capital Management. In terms of the portfolio weights assigned to each position Deep Basin Capital allocated the biggest weight to Cactus, Inc. (NYSE:WHD), around 2.41% of its 13F portfolio. Encompass Capital Advisors is also relatively very bullish on the stock, earmarking 2.36 percent of its 13F equity portfolio to WHD.
Seeing as Cactus, Inc. (NYSE:WHD) has experienced a decline in interest from hedge fund managers, it’s easy to see that there were a few funds that decided to sell off their positions entirely by the end of the third quarter. At the top of the heap, Till Bechtolsheimer’s Arosa Capital Management dropped the largest investment of the 750 funds monitored by Insider Monkey, valued at close to $10.4 million in stock. Chuck Royce’s fund, Royce & Associates, also cut its stock, about $0 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 2 funds by the end of the third quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Cactus, Inc. (NYSE:WHD) but similarly valued. These stocks are Delphi Technologies PLC (NYSE:DLPH), Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD), Kymera Therapeutics, Inc. (NASDAQ:KYMR), WesBanco, Inc. (NASDAQ:WSBC), Generation Bio Co. (NASDAQ:GBIO), McGrath RentCorp (NASDAQ:MGRC), and Niu Technologies (NASDAQ:NIU). This group of stocks’ market caps match WHD’s market cap.
|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 18.3 hedge funds with bullish positions and the average amount invested in these stocks was $199 million. That figure was $104 million in WHD’s case. Delphi Technologies PLC (NYSE:DLPH) is the most popular stock in this table. On the other hand Generation Bio Co. (NASDAQ:GBIO) is the least popular one with only 6 bullish hedge fund positions. Cactus, Inc. (NYSE:WHD) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for WHD is 55.7. 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 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on WHD as the stock returned 39.2% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.