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Waste Management (WM): Hedge Funds Taking Some Chips Off The Table

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Waste Management, Inc. (NYSE:WM) and determine whether hedge funds skillfully traded this stock.

Waste Management, Inc. (NYSE:WM) has seen a decrease in support from the world’s most elite money managers in recent months. Waste Management, Inc. (NYSE:WM) was in 39 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 52. There were 40 hedge funds in our database with WM holdings at the end of March. Our calculations also showed that WM 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.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

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. Legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Keeping this in mind let’s go over the recent hedge fund action surrounding Waste Management, Inc. (NYSE:WM).

How have hedgies been trading Waste Management, Inc. (NYSE:WM)?

At the end of the second quarter, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards WM over the last 20 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is WM A Good Stock To Buy?

Of the funds tracked by Insider Monkey, Bill & Melinda Gates Foundation Trust, managed by Michael Larson, holds the most valuable position in Waste Management, Inc. (NYSE:WM). Bill & Melinda Gates Foundation Trust has a $1.9735 billion position in the stock, comprising 11% of its 13F portfolio. The second largest stake is held by Cliff Asness of AQR Capital Management, with a $211 million position; 0.3% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that are bullish consist of Ian Simm’s Impax Asset Management, John Overdeck and David Siegel’s Two Sigma Advisors and Renaissance Technologies. 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 11.05% of its 13F portfolio. Ecofin Ltd is also relatively very bullish on the stock, dishing out 2.77 percent of its 13F equity portfolio to WM.

Since Waste Management, Inc. (NYSE:WM) has witnessed declining sentiment from the smart money, it’s safe to say that there was a specific group of funds who sold off their full holdings heading into Q3. Interestingly, David Gallo’s Valinor Management LLC cut the largest stake of the 750 funds monitored by Insider Monkey, comprising an estimated $50.4 million in stock, and Vikas Lunia’s Lunia Capital was right behind this move, as the fund cut about $6.7 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 1 funds heading into Q3.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Waste Management, Inc. (NYSE:WM) but similarly valued. These stocks are PNC Financial Services Group Inc. (NYSE:PNC), Aon plc (NYSE:AON), Atlassian Corporation Plc (NASDAQ:TEAM), Honda Motor Co Ltd (NYSE:HMC), Workday Inc (NYSE:WDAY), Edwards Lifesciences Corporation (NYSE:EW), and Baxter International Inc. (NYSE:BAX). This group of stocks’ market values are closest to WM’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PNC 52 1108094 12
AON 57 4755205 10
TEAM 55 2872691 -4
HMC 10 296833 2
WDAY 73 3444523 15
EW 45 1391002 -4
BAX 59 2583223 9
Average 50.1 2350224 5.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 50.1 hedge funds with bullish positions and the average amount invested in these stocks was $2350 million. That figure was $2845 million in WM’s case. Workday Inc (NYSE:WDAY) is the most popular stock in this table. On the other hand Honda Motor Co Ltd (NYSE:HMC) is the least popular one with only 10 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 49.5. 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. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 33% in 2020 through the end of August and surpassed the market by 23.2 percentage points. Unfortunately WM wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); WM investors were disappointed as the stock returned 7.6% since Q2 and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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