Is WMG A Good Stock To Buy Now?

In this article we will check out the progression of hedge fund sentiment towards Warner Music Group Corp. (NASDAQ:WMG) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is WMG a good stock to buy now? Warner Music Group Corp. (NASDAQ:WMG) was in 20 hedge funds’ portfolios at the end of September. The all time high for this statistic is 31. WMG investors should be aware of a decrease in enthusiasm from smart money of late. There were 31 hedge funds in our database with WMG positions at the end of the second quarter. Our calculations also showed that WMG 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Matthew Hulsizer PEAK6 Capital

Matthew Hulsizer of PEAK6 Capital

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 let’s review the fresh hedge fund action encompassing Warner Music Group Corp. (NASDAQ:WMG).

Do Hedge Funds Think WMG 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 -35% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards WMG 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.

Is WMG A Good Stock To Buy?

More specifically, Slate Path Capital was the largest shareholder of Warner Music Group Corp. (NASDAQ:WMG), with a stake worth $150.3 million reported as of the end of September. Trailing Slate Path Capital was Darsana Capital Partners, which amassed a stake valued at $139.8 million. OZ Management, SoMa Equity Partners, and Shannon River Fund Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Slate Path Capital allocated the biggest weight to Warner Music Group Corp. (NASDAQ:WMG), around 8.55% of its 13F portfolio. Darsana Capital Partners is also relatively very bullish on the stock, designating 7.11 percent of its 13F equity portfolio to WMG.

Judging by the fact that Warner Music Group Corp. (NASDAQ:WMG) has faced falling interest from the entirety of the hedge funds we track, we can see that there exists a select few hedgies who were dropping their full holdings last quarter. Interestingly, Josh Resnick’s Jericho Capital Asset Management dropped the biggest investment of the “upper crust” of funds followed by Insider Monkey, comprising about $40.2 million in stock. Mitch Kuflik and Rob Sobel’s fund, Brahman Capital, also cut its stock, about $29.1 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 11 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to Warner Music Group Corp. (NASDAQ:WMG). These stocks are Martin Marietta Materials, Inc. (NYSE:MLM), Campbell Soup Company (NYSE:CPB), Healthpeak Properties, Inc. (NYSE:PEAK), Energy Transfer L.P. (NYSE:ET), Li Auto Inc. (NASDAQ:LI), ArcelorMittal (NYSE:MT), and Bilibili Inc. (NASDAQ:BILI). This group of stocks’ market valuations resemble WMG’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MLM 38 1934050 -13
CPB 28 533547 -4
PEAK 22 290836 -1
ET 31 427313 0
LI 26 256910 26
MT 20 309854 1
BILI 37 1023597 8
Average 28.9 682301 2.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.9 hedge funds with bullish positions and the average amount invested in these stocks was $682 million. That figure was $662 million in WMG’s case. Martin Marietta Materials, Inc. (NYSE:MLM) is the most popular stock in this table. On the other hand ArcelorMittal (NYSE:MT) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Warner Music Group Corp. (NASDAQ:WMG) is even less popular than MT. Our overall hedge fund sentiment score for WMG is 13.4. 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. Hedge funds clearly dropped the ball on WMG as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on WMG as the stock returned 15.6% since Q3 (through December 14th) and outperformed the market by an even larger margin.

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