Were Hedge Funds Right About Piling Into WAB?

In this article you are going to find out whether hedge funds think Westinghouse Air Brake Technologies Corporation (NYSE:WAB) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Westinghouse Air Brake Technologies Corporation (NYSE:WAB) was in 45 hedge funds’ portfolios at the end of December. The all time high for this statistic was previously 41. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. WAB investors should be aware of an increase in enthusiasm from smart money lately. There were 38 hedge funds in our database with WAB positions at the end of the third quarter. Our calculations also showed that WAB isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Richard Pzena - Pzena Investment Management

Richard S. Pzena of Pzena Investment Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now let’s check out the recent hedge fund action regarding Westinghouse Air Brake Technologies Corporation (NYSE:WAB).

Do Hedge Funds Think WAB Is A Good Stock To Buy Now?

At the end of December, a total of 45 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from the third quarter of 2020. Below, you can check out the change in hedge fund sentiment towards WAB over the last 22 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

Is WAB A Good Stock To Buy?

More specifically, Pzena Investment Management was the largest shareholder of Westinghouse Air Brake Technologies Corporation (NYSE:WAB), with a stake worth $479.6 million reported as of the end of December. Trailing Pzena Investment Management was Farallon Capital, which amassed a stake valued at $365.8 million. Eagle Capital Management, 3G Sahana Capital Management, and First Pacific Advisors LLC were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position 3G Sahana Capital Management allocated the biggest weight to Westinghouse Air Brake Technologies Corporation (NYSE:WAB), around 26.64% of its 13F portfolio. XN Exponent Advisors is also relatively very bullish on the stock, dishing out 10.74 percent of its 13F equity portfolio to WAB.

Now, some big names were breaking ground themselves. XN Exponent Advisors, managed by Gaurav Kapadia, established the most valuable position in Westinghouse Air Brake Technologies Corporation (NYSE:WAB). XN Exponent Advisors had $164.5 million invested in the company at the end of the quarter. Will Cook’s Sunriver Management also initiated a $32.7 million position during the quarter. The other funds with new positions in the stock are John Brennan’s Sirios Capital Management, Richard Schimel and Lawrence Sapanski’s Cinctive Capital Management, and Greg Poole’s Echo Street Capital Management.

Let’s go over hedge fund activity in other stocks similar to Westinghouse Air Brake Technologies Corporation (NYSE:WAB). We will take a look at Wix.Com Ltd (NASDAQ:WIX), Liberty Global plc (NASDAQ:LBTYA), Black Knight, Inc. (NYSE:BKI), Natura &Co Holding S.A. (NYSE:NTCO), Sunrun Inc (NASDAQ:RUN), iQIYI, Inc. (NASDAQ:IQ), and VICI Properties Inc. (NYSE:VICI). This group of stocks’ market values are similar to WAB’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WIX 37 999707 1
LBTYA 36 1123404 1
BKI 44 994940 3
NTCO 4 82302 0
RUN 48 3008231 19
IQ 30 1048707 12
VICI 38 970234 -2
Average 33.9 1175361 4.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.9 hedge funds with bullish positions and the average amount invested in these stocks was $1175 million. That figure was $2349 million in WAB’s case. Sunrun Inc (NASDAQ:RUN) is the most popular stock in this table. On the other hand Natura &Co Holding S.A. (NYSE:NTCO) is the least popular one with only 4 bullish hedge fund positions. Westinghouse Air Brake Technologies Corporation (NYSE:WAB) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for WAB is 86.6. 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 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on WAB, though not to the same extent, as the stock returned 12.3% since Q4 (through April 30th) and outperformed the market as well.

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