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Were Hedge Funds Right About The Sherwin-Williams Company (SHW)?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With this in mind let’s see whether The Sherwin-Williams Company (NYSE:SHW) makes for a good investment at the moment. We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.

The Sherwin-Williams Company (NYSE:SHW) has seen an increase in activity from the world’s largest hedge funds in recent months. Our calculations also showed that SHW isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

At the moment there are plenty of tools market participants have at their disposal to value stocks. A pair of the less known tools are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the best picks of the elite money managers can trounce the S&P 500 by a healthy margin (see the details here).

CHILTON INVESTMENT COMPANY

Richard Chilton of Chilton Investment Company

We leave no stone unturned when looking for the next great investment idea. For example, this trader is claiming triple digit returns, so we check out his latest trade recommendations. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences (by the way watch this video if you want to hear one of the best healthcare hedge fund manager’s coronavirus analysis). 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. With all of this in mind let’s take a look at the new hedge fund action surrounding The Sherwin-Williams Company (NYSE:SHW).

Hedge fund activity in The Sherwin-Williams Company (NYSE:SHW)

Heading into the first quarter of 2020, a total of 55 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 8% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SHW over the last 18 quarters. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

Is SHW A Good Stock To Buy?

The largest stake in The Sherwin-Williams Company (NYSE:SHW) was held by Chilton Investment Company, which reported holding $248.2 million worth of stock at the end of September. It was followed by Farallon Capital with a $214.6 million position. Other investors bullish on the company included Adage Capital Management, Two Sigma Advisors, and OZ Management. In terms of the portfolio weights assigned to each position Chilton Investment Company allocated the biggest weight to The Sherwin-Williams Company (NYSE:SHW), around 7.94% of its 13F portfolio. Bristol Gate Capital Partners is also relatively very bullish on the stock, designating 4.42 percent of its 13F equity portfolio to SHW.

With a general bullishness amongst the heavyweights, key money managers have been driving this bullishness. Gotham Asset Management, managed by Joel Greenblatt, assembled the biggest position in The Sherwin-Williams Company (NYSE:SHW). Gotham Asset Management had $19.3 million invested in the company at the end of the quarter. Renaissance Technologies also initiated a $15.6 million position during the quarter. The following funds were also among the new SHW investors: Peter Muller’s PDT Partners, Ray Dalio’s Bridgewater Associates, and Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as The Sherwin-Williams Company (NYSE:SHW) but similarly valued. These stocks are Biogen Inc. (NASDAQ:BIIB), Advanced Micro Devices, Inc. (NASDAQ:AMD), ServiceNow Inc (NYSE:NOW), and General Motors Company (NYSE:GM). All of these stocks’ market caps match SHW’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BIIB 61 5162729 8
AMD 53 1462695 -6
NOW 75 5035036 -17
GM 75 6531524 -1
Average 66 4547996 -4

View table here if you experience formatting issues.

As you can see these stocks had an average of 66 hedge funds with bullish positions and the average amount invested in these stocks was $4548 million. That figure was $1847 million in SHW’s case. ServiceNow Inc (NYSE:NOW) is the most popular stock in this table. On the other hand Advanced Micro Devices, Inc. (NASDAQ:AMD) is the least popular one with only 53 bullish hedge fund positions. The Sherwin-Williams Company (NYSE:SHW) is not the least popular stock in this group but hedge fund interest is still below average. 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 lost 1.0% in 2020 through April 20th but beat the market by 11 percentage points. Unfortunately SHW wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); SHW investors were disappointed as the stock returned -14.8% 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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