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Were Hedge Funds Right About Flocking Into Cactus, Inc. (WHD) ?

Is Cactus, Inc. (NYSE:WHD) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably but historically their consensus stock picks outperformed the market after adjusting for known risk factors.

Is Cactus, Inc. (NYSE:WHD) a buy, sell, or hold? Hedge funds are in an optimistic mood. The number of long hedge fund positions increased by 1 in recent months. Our calculations also showed that whd isn’t among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

CITADEL INVESTMENT GROUP

Let’s take a gander at the new hedge fund action surrounding Cactus, Inc. (NYSE:WHD).

What does the smart money think about Cactus, Inc. (NYSE:WHD)?

At Q4’s end, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in WHD over the last 14 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with WHD Positions

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Millennium Management, managed by Israel Englander, holds the largest position in Cactus, Inc. (NYSE:WHD). Millennium Management has a $46.3 million position in the stock, comprising 0.1% of its 13F portfolio. Coming in second is Todd J. Kantor of Encompass Capital Advisors, with a $22.1 million position; the fund has 2.4% of its 13F portfolio invested in the stock. Other peers with similar optimism include Ken Griffin’s Citadel Investment Group, Daniel Arbess’s Perella Weinberg Partners and Phill Gross and Robert Atchinson’s Adage Capital Management.

Consequently, some big names were breaking ground themselves. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, assembled the most valuable position in Cactus, Inc. (NYSE:WHD). Marshall Wace LLP had $10.2 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also initiated a $3.3 million position during the quarter. The other funds with new positions in the stock are Brandon Haley’s Holocene Advisors and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors.

Let’s now review hedge fund activity in other stocks similar to Cactus, Inc. (NYSE:WHD). We will take a look at Travelport Worldwide Ltd (NYSE:TVPT), SITE Centers Corp. (NYSE:SITC), El Paso Electric Company (NYSE:EE), and Agree Realty Corporation (NYSE:ADC). This group of stocks’ market values match WHD’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TVPT 24 458103 1
SITC 15 91617 3
EE 23 274242 8
ADC 11 52478 -3
Average 18.25 219110 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.25 hedge funds with bullish positions and the average amount invested in these stocks was $219 million. That figure was $160 million in WHD’s case. Travelport Worldwide Ltd (NYSE:TVPT) is the most popular stock in this table. On the other hand Agree Realty Corporation (NYSE:ADC) is the least popular one with only 11 bullish hedge fund positions. Cactus, Inc. (NYSE:WHD) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. A small number of hedge funds were also right about betting on WHD as the stock returned 43.9% and outperformed the market by an even larger margin.

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

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