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WABCO Holdings Inc. (WBC): Hedge Fund Sentiment Cooling Off

We can judge whether WABCO Holdings Inc. (NYSE:WBC) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.

WABCO Holdings Inc. (NYSE:WBC) was in 33 hedge funds’ portfolios at the end of June. WBC has seen a decrease in enthusiasm from smart money in recent months. There were 36 hedge funds in our database with WBC holdings at the end of the previous quarter. Our calculations also showed that WBC isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Clint Carlson, Carlson Capital

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a look at the key hedge fund action surrounding WABCO Holdings Inc. (NYSE:WBC).

How are hedge funds trading WABCO Holdings Inc. (NYSE:WBC)?

At the end of the second quarter, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the previous quarter. By comparison, 23 hedge funds held shares or bullish call options in WBC a year ago. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

WBC_oct2019

Among these funds, Magnetar Capital held the most valuable stake in WABCO Holdings Inc. (NYSE:WBC), which was worth $220.8 million at the end of the second quarter. On the second spot was Citadel Investment Group which amassed $184.5 million worth of shares. Moreover, Alpine Associates, Carlson Capital, and Millennium Management were also bullish on WABCO Holdings Inc. (NYSE:WBC), allocating a large percentage of their portfolios to this stock.

Because WABCO Holdings Inc. (NYSE:WBC) has experienced a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there were a few money managers who sold off their entire stakes in the second quarter. Intriguingly, Bob Peck and Andy Raab’s FPR Partners sold off the biggest stake of the “upper crust” of funds followed by Insider Monkey, comprising close to $116.6 million in stock, and Cliff Asness’s AQR Capital Management was right behind this move, as the fund dropped about $26.7 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 3 funds in the second quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as WABCO Holdings Inc. (NYSE:WBC) but similarly valued. These stocks are CyrusOne Inc (NASDAQ:CONE), Signature Bank (NASDAQ:SBNY), Steel Dynamics, Inc. (NASDAQ:STLD), and East West Bancorp, Inc. (NASDAQ:EWBC). This group of stocks’ market values resemble WBC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CONE 18 173157 1
SBNY 29 513611 -7
STLD 31 591407 4
EWBC 28 378757 -1
Average 26.5 414233 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $414 million. That figure was $1346 million in WBC’s case. Steel Dynamics, Inc. (NASDAQ:STLD) is the most popular stock in this table. On the other hand CyrusOne Inc (NASDAQ:CONE) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks WABCO Holdings Inc. (NYSE:WBC) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately WBC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on WBC were disappointed as the stock returned 0.9% during the third quarter 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 many of these stocks already outperformed the market in Q3.

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

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