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Were Hedge Funds Right About Staying Away From Weyerhaeuser Co. (WY)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession.

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Weyerhaeuser Co. (NYSE:WY) is 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, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Weyerhaeuser Co. (NYSE:WY) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 30 hedge funds’ portfolios at the end of the fourth quarter of 2019. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as IDEXX Laboratories, Inc. (NASDAQ:IDXX), M&T Bank Corporation (NYSE:MTB), and Corning Incorporated (NYSE:GLW) to gather more data points. Our calculations also showed that WY isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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 S&P 500 ETFs by more than 41 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 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 stocks that are in our short portfolio.

Martin Whitman Third Avenue Management Marty Whitman

Martin Whitman of Third Avenue Management

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a peek at the new hedge fund action regarding Weyerhaeuser Co. (NYSE:WY).

What have hedge funds been doing with Weyerhaeuser Co. (NYSE:WY)?

Heading into the first quarter of 2020, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 37 hedge funds with a bullish position in WY a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Third Avenue Management was the largest shareholder of Weyerhaeuser Co. (NYSE:WY), with a stake worth $79.9 million reported as of the end of September. Trailing Third Avenue Management was Renaissance Technologies, which amassed a stake valued at $78.2 million. Adage Capital Management, Samlyn Capital, and Millennium Management 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 Third Avenue Management allocated the biggest weight to Weyerhaeuser Co. (NYSE:WY), around 7.9% of its 13F portfolio. Bourgeon Capital is also relatively very bullish on the stock, dishing out 3.08 percent of its 13F equity portfolio to WY.

Seeing as Weyerhaeuser Co. (NYSE:WY) has experienced bearish sentiment from the smart money, logic holds that there lies a certain “tier” of fund managers who sold off their full holdings in the third quarter. It’s worth mentioning that Ken Heebner’s Capital Growth Management dropped the biggest stake of the 750 funds tracked by Insider Monkey, totaling close to $31.9 million in stock. Steve Cohen’s fund, Point72 Asset Management, also said goodbye to its stock, about $24.9 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks similar to Weyerhaeuser Co. (NYSE:WY). These stocks are IDEXX Laboratories, Inc. (NASDAQ:IDXX), M&T Bank Corporation (NYSE:MTB), Corning Incorporated (NYSE:GLW), and United Airlines Holdings Inc (NYSE:UAL). This group of stocks’ market caps are similar to WY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
IDXX 37 540337 4
MTB 32 1357139 0
GLW 35 221721 5
UAL 62 6947983 10
Average 41.5 2266795 4.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 41.5 hedge funds with bullish positions and the average amount invested in these stocks was $2267 million. That figure was $324 million in WY’s case. United Airlines Holdings Inc (NYSE:UAL) is the most popular stock in this table. On the other hand M&T Bank Corporation (NYSE:MTB) is the least popular one with only 32 bullish hedge fund positions. Compared to these stocks Weyerhaeuser Co. (NYSE:WY) is even less popular than MTB. Hedge funds dodged a bullet by taking a bearish stance towards WY. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 11.7% in 2020 through March 11th but managed to beat the market by 3.1 percentage points. Unfortunately WY wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); WY investors were disappointed as the stock returned -24.7% during the same time period 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 most of these stocks already outperformed the market so far in Q1.

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

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