At Insider Monkey, we pore over the filings of nearly 817 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of September 30. In this article, we will use that wealth of knowledge to determine whether or not West Pharmaceutical Services Inc. (NYSE:WST) makes for a good investment right now.
Is WST a good stock to buy now? West Pharmaceutical Services Inc. (NYSE:WST) has experienced an increase in hedge fund interest lately. West Pharmaceutical Services Inc. (NYSE:WST) was in 41 hedge funds’ portfolios at the end of September. The all time high for this statistic is 34. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that WST 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 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 S&P 500 ETFs by 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 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.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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. Keeping this in mind let’s take a look at the new hedge fund action regarding West Pharmaceutical Services Inc. (NYSE:WST).
Do Hedge Funds Think WST Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, a change of 52% from the previous quarter. The graph below displays the number of hedge funds with bullish position in WST over the last 21 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
More specifically, Fisher Asset Management was the largest shareholder of West Pharmaceutical Services Inc. (NYSE:WST), with a stake worth $86.6 million reported as of the end of September. Trailing Fisher Asset Management was Intermede Investment Partners, which amassed a stake valued at $54.8 million. Arrowstreet Capital, AQR Capital Management, and Adage Capital 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 Intermede Investment Partners allocated the biggest weight to West Pharmaceutical Services Inc. (NYSE:WST), around 2.29% of its 13F portfolio. Navellier & Associates is also relatively very bullish on the stock, setting aside 0.97 percent of its 13F equity portfolio to WST.
As aggregate interest increased, key hedge funds have been driving this bullishness. Bridgewater Associates, managed by Ray Dalio, created the largest position in West Pharmaceutical Services Inc. (NYSE:WST). Bridgewater Associates had $4.9 million invested in the company at the end of the quarter. Louis Navellier’s Navellier & Associates also initiated a $4.5 million position during the quarter. The other funds with brand new WST positions are Jinghua Yan’s TwinBeech Capital, Brad Farber’s Atika Capital, and Paul Tudor Jones’s Tudor Investment Corp.
Let’s check out hedge fund activity in other stocks similar to West Pharmaceutical Services Inc. (NYSE:WST). We will take a look at Ecopetrol S.A. (NYSE:EC), Arthur J. Gallagher & Co. (NYSE:AJG), Alexandria Real Estate Equities Inc (NYSE:ARE), Nasdaq, Inc. (NASDAQ:NDAQ), Interactive Brokers Group, Inc. (NASDAQ:IBKR), Rogers Communications Inc. (NYSE:RCI), and FleetCor Technologies, Inc. (NYSE:FLT). This group of stocks’ market valuations are similar to WST’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 26 hedge funds with bullish positions and the average amount invested in these stocks was $478 million. That figure was $376 million in WST’s case. FleetCor Technologies, Inc. (NYSE:FLT) is the most popular stock in this table. On the other hand Ecopetrol S.A. (NYSE:EC) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks West Pharmaceutical Services Inc. (NYSE:WST) is more popular among hedge funds. Our overall hedge fund sentiment score for WST is 90. 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. Unfortunately WST wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on WST were disappointed as the stock returned -3.6% since the end of the third quarter (through 12/14) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.