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 Worthington Industries, Inc. (NYSE:WOR) and determine whether hedge funds had an edge regarding this stock.
Worthington Industries, Inc. (NYSE:WOR) was in 21 hedge funds’ portfolios at the end of June. The all time high for this statistics is 25. WOR has seen an increase in activity from the world’s largest hedge funds lately. There were 14 hedge funds in our database with WOR positions at the end of the first quarter. Our calculations also showed that WOR isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 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 34% through August 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 precious metals prices. So, we are checking out this junior gold mining stock. We are also checking out this lithium company which could benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Now let’s take a peek at the new hedge fund action surrounding Worthington Industries, Inc. (NYSE:WOR).
Hedge fund activity in Worthington Industries, Inc. (NYSE:WOR)
At the end of the second quarter, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 50% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards WOR over the last 20 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Millennium Management was the largest shareholder of Worthington Industries, Inc. (NYSE:WOR), with a stake worth $19.8 million reported as of the end of September. Trailing Millennium Management was Royce & Associates, which amassed a stake valued at $17.4 million. Nitorum Capital, Potrero Capital Research, and Arrowstreet Capital 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 Cloverdale Capital Management allocated the biggest weight to Worthington Industries, Inc. (NYSE:WOR), around 2.36% of its 13F portfolio. Potrero Capital Research is also relatively very bullish on the stock, earmarking 2.18 percent of its 13F equity portfolio to WOR.
As aggregate interest increased, specific money managers were breaking ground themselves. Nitorum Capital, managed by Seth Rosen, initiated the most outsized position in Worthington Industries, Inc. (NYSE:WOR). Nitorum Capital had $9 million invested in the company at the end of the quarter. Jack Ripsteen’s Potrero Capital Research also made a $4.7 million investment in the stock during the quarter. The following funds were also among the new WOR investors: Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Michael Cowley’s Sandbar Asset Management, and C. Jonathan Gattman’s Cloverdale Capital Management.
Let’s check out hedge fund activity in other stocks similar to Worthington Industries, Inc. (NYSE:WOR). These stocks are CIT Group Inc. (NYSE:CIT), Enable Midstream Partners LP (NYSE:ENBL), Washington Federal Inc. (NASDAQ:WAFD), Arcosa, Inc. (NYSE:ACA), Columbia Banking System Inc (NASDAQ:COLB), International Bancshares Corp (NASDAQ:IBOC), and Hillenbrand, Inc. (NYSE:HI). All of these stocks’ market caps match WOR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CIT | 27 | 320526 | -10 |
| ENBL | 5 | 11040 | -1 |
| WAFD | 14 | 34823 | -4 |
| ACA | 16 | 156074 | -1 |
| COLB | 9 | 85368 | -3 |
| IBOC | 17 | 86045 | 1 |
| HI | 12 | 185181 | -2 |
| Average | 14.3 | 125580 | -2.9 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.3 hedge funds with bullish positions and the average amount invested in these stocks was $126 million. That figure was $77 million in WOR’s case. CIT Group Inc. (NYSE:CIT) is the most popular stock in this table. On the other hand Enable Midstream Partners LP (NYSE:ENBL) is the least popular one with only 5 bullish hedge fund positions. Worthington Industries, Inc. (NYSE:WOR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for WOR is 71.6. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and still beat the market by 19.3 percentage points. Hedge funds were also right about betting on WOR, though not to the same extent, as the stock returned 10% in Q3 and outperformed the market as well.
Follow Worthington Enterprises Inc. (NYSE:WOR)
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Disclosure: None. This article was originally published at Insider Monkey.
