Should I Avoid Waste Management, Inc. (WM)?

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 Waste Management, Inc. (NYSE:WM).

Is Waste Management, Inc. (NYSE:WM) the right investment to pursue these days? Money managers were turning less bullish. The number of bullish hedge fund bets went down by 5 recently. Waste Management, Inc. (NYSE:WM) was in 32 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 52. Our calculations also showed that WM isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.


Cliff Asness of AQR Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind let’s take a look at the recent hedge fund action surrounding Waste Management, Inc. (NYSE:WM).

Do Hedge Funds Think WM Is A Good Stock To Buy Now?

At Q1’s end, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the fourth quarter of 2020. Below, you can check out the change in hedge fund sentiment towards WM over the last 23 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Bill & Melinda Gates Foundation Trust held the most valuable stake in Waste Management, Inc. (NYSE:WM), which was worth $2404.1 million at the end of the fourth quarter. On the second spot was Impax Asset Management which amassed $331.1 million worth of shares. AQR Capital Management, Citadel Investment Group, and Locust Wood Capital Advisers 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 Bill & Melinda Gates Foundation Trust allocated the biggest weight to Waste Management, Inc. (NYSE:WM), around 11.47% of its 13F portfolio. Locust Wood Capital Advisers is also relatively very bullish on the stock, setting aside 5.71 percent of its 13F equity portfolio to WM.

Seeing as Waste Management, Inc. (NYSE:WM) has experienced falling interest from the entirety of the hedge funds we track, logic holds that there was a specific group of hedge funds that elected to cut their positions entirely heading into Q2. Interestingly, Phill Gross and Robert Atchinson’s Adage Capital Management dumped the largest investment of all the hedgies followed by Insider Monkey, comprising close to $5.8 million in stock, and Joel Greenblatt’s Gotham Asset Management was right behind this move, as the fund cut about $4.8 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 5 funds heading into Q2.

Let’s now take a look at hedge fund activity in other stocks similar to Waste Management, Inc. (NYSE:WM). We will take a look at Emerson Electric Co. (NYSE:EMR), Humana Inc (NYSE:HUM), Northrop Grumman Corporation (NYSE:NOC), Metlife Inc (NYSE:MET), Atlassian Corporation Plc (NASDAQ:TEAM), Southern Copper Corporation (NYSE:SCCO), and The Blackstone Group Inc. (NYSE:BX). All of these stocks’ market caps resemble WM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EMR 45 796035 -1
HUM 53 2878475 -6
NOC 40 1510503 0
MET 32 1147122 -5
TEAM 67 3955751 -2
SCCO 27 589771 4
BX 49 1626408 -5
Average 44.7 1786295 -2.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 44.7 hedge funds with bullish positions and the average amount invested in these stocks was $1786 million. That figure was $3290 million in WM’s case. Atlassian Corporation Plc (NASDAQ:TEAM) is the most popular stock in this table. On the other hand Southern Copper Corporation (NYSE:SCCO) is the least popular one with only 27 bullish hedge fund positions. Waste Management, Inc. (NYSE:WM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for WM is 24.7. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 22.8% in 2021 through July 2nd and beat the market by 6 percentage points. A small number of hedge funds were also right about betting on WM, though not to the same extent, as the stock returned 10.5% since the end of Q1 (through July 2nd) and outperformed the market.

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