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Should You Buy Advanced Drainage Systems, Inc. (WMS)?

Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.

Is Advanced Drainage Systems, Inc. (NYSE:WMS) a splendid investment now? The best stock pickers are buying. The number of long hedge fund positions went up by 1 in recent months. Our calculations also showed that wms isn’t among the 30 most popular stocks among hedge funds. WMS was in 17 hedge funds’ portfolios at the end of September. There were 16 hedge funds in our database with WMS holdings at the end of the previous quarter.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (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 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

D. E. Shaw

Let’s check out the key hedge fund action regarding Advanced Drainage Systems, Inc. (NYSE:WMS).

How are hedge funds trading Advanced Drainage Systems, Inc. (NYSE:WMS)?

At Q3’s end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from the second quarter of 2018. By comparison, 11 hedge funds held shares or bullish call options in WMS heading into this year. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

No of Hedge Funds with WMS Positions

Among these funds, Stockbridge Partners held the most valuable stake in Advanced Drainage Systems, Inc. (NYSE:WMS), which was worth $116.1 million at the end of the third quarter. On the second spot was Impax Asset Management which amassed $106.2 million worth of shares. Moreover, PAR Capital Management, ACK Asset Management, and D E Shaw were also bullish on Advanced Drainage Systems, Inc. (NYSE:WMS), allocating a large percentage of their portfolios to this stock.

With a general bullishness amongst the heavyweights, key money managers were breaking ground themselves. DSAM Partners, managed by Guy Shahar, assembled the biggest position in Advanced Drainage Systems, Inc. (NYSE:WMS). DSAM Partners had $0.4 million invested in the company at the end of the quarter. Michael Platt and William Reeves’s BlueCrest Capital Mgmt. also initiated a $0.3 million position during the quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Advanced Drainage Systems, Inc. (NYSE:WMS) but similarly valued. We will take a look at American Assets Trust, Inc (NYSE:AAT), Capitol Federal Financial, Inc. (NASDAQ:CFFN), ESCO Technologies Inc. (NYSE:ESE), and Fanhua Inc. (NASDAQ:FANH). This group of stocks’ market caps are similar to WMS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AAT 11 130155 -5
CFFN 12 198424 2
ESE 6 6217 3
FANH 4 9984 -1
Average 8.25 86195 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 8.25 hedge funds with bullish positions and the average amount invested in these stocks was $86 million. That figure was $375 million in WMS’s case. Capitol Federal Financial, Inc. (NASDAQ:CFFN) is the most popular stock in this table. On the other hand Fanhua Inc. (NASDAQ:FANH) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Advanced Drainage Systems, Inc. (NYSE:WMS) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

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

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