Was The Smart Money Right About Crowding Into WESCO International, Inc. (WCC)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards WESCO International, Inc. (NYSE:WCC).

WESCO International, Inc. (NYSE:WCC) was in 34 hedge funds’ portfolios at the end of June. The all time high for this statistics is 32. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. WCC investors should pay attention to an increase in hedge fund sentiment in recent months. There were 32 hedge funds in our database with WCC holdings at the end of March. Our calculations also showed that WCC 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.

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 monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

William Harnisch

William Harnisch of Peconic Partners LLC

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. 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 view the key hedge fund action encompassing WESCO International, Inc. (NYSE:WCC).

How are hedge funds trading WESCO International, Inc. (NYSE:WCC)?

Heading into the third quarter of 2020, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from the first quarter of 2020. On the other hand, there were a total of 18 hedge funds with a bullish position in WCC a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Leonard Green’s Leonard Green & Partners has the biggest position in WESCO International, Inc. (NYSE:WCC), worth close to $87.8 million, corresponding to 16.4% of its total 13F portfolio. Sitting at the No. 2 spot is Ric Dillon of Diamond Hill Capital, with a $77.9 million position; the fund has 0.5% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions encompass Ken Griffin’s Citadel Investment Group, Cliff Asness’s AQR Capital Management and William Harnisch’s Peconic Partners LLC. In terms of the portfolio weights assigned to each position Leonard Green & Partners allocated the biggest weight to WESCO International, Inc. (NYSE:WCC), around 16.37% of its 13F portfolio. Peconic Partners LLC is also relatively very bullish on the stock, designating 12.12 percent of its 13F equity portfolio to WCC.

With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Leonard Green & Partners, managed by Leonard Green, established the most valuable position in WESCO International, Inc. (NYSE:WCC). Leonard Green & Partners had $87.8 million invested in the company at the end of the quarter. David Harding’s Winton Capital Management also made a $4 million investment in the stock during the quarter. The following funds were also among the new WCC investors: Ira Unschuld’s Brant Point Investment Management, Jay Genzer’s Thames Capital Management, and David Nguyen and Nancy Oh’s One68 Global Capital.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as WESCO International, Inc. (NYSE:WCC) but similarly valued. These stocks are Euronav NV (NYSE:EURN), PennyMac Mortgage Investment Trust (NYSE:PMT), Madrigal Pharmaceuticals, Inc. (NASDAQ:MDGL), Moog Inc (NYSE:MOG), Chart Industries, Inc. (NASDAQ:GTLS), Independent Bank Group Inc (NASDAQ:IBTX), and InterDigital, Inc. (NASDAQ:IDCC). This group of stocks’ market caps are similar to WCC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EURN 17 93347 -16
PMT 15 124808 3
MDGL 15 435642 0
MOG 23 81342 3
GTLS 22 195025 1
IBTX 9 64774 -11
IDCC 23 355140 0
Average 17.7 192868 -2.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.7 hedge funds with bullish positions and the average amount invested in these stocks was $193 million. That figure was $504 million in WCC’s case. Moog Inc (NYSE:MOG) is the most popular stock in this table. On the other hand Independent Bank Group Inc (NASDAQ:IBTX) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks WESCO International, Inc. (NYSE:WCC) is more popular among hedge funds. Our overall hedge fund sentiment score for WCC is 87. 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 returned 23% in 2020 through October 30th but still managed to beat the market by 20.1 percentage points. Hedge funds were also right about betting on WCC as the stock returned 17.5% since the end of June (through 10/30) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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