Were Hedge Funds Right About Wells Fargo & Company (WFC)?

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. Keeping this in mind, let’s analyze whether Wells Fargo & Company (NYSE:WFC) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.

Is Wells Fargo & Company (NYSE:WFC) a superb investment now? Hedge funds are turning bullish. The number of bullish hedge fund positions went up by 12 in recent months. Our calculations also showed that WFC 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).

In the financial world there are a large number of methods stock market investors have at their disposal to analyze stocks. Some of the less known methods are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the best picks of the elite investment managers can outpace the broader indices by a significant margin (see the details here).


Boykin Curry of Eagle Capital

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 are probably at the peak of the COVID-19 pandemic, so we check out this biotech investor’s coronavirus picks. 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. Keeping this in mind we’re going to check out the key hedge fund action encompassing Wells Fargo & Company (NYSE:WFC).

What does smart money think about Wells Fargo & Company (NYSE:WFC)?

Heading into the first quarter of 2020, a total of 79 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 18% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards WFC over the last 18 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

The largest stake in Wells Fargo & Company (NYSE:WFC) was held by Berkshire Hathaway, which reported holding $17388.9 million worth of stock at the end of September. It was followed by Eagle Capital Management with a $1479.2 million position. Other investors bullish on the company included Gardner Russo & Gardner, Theleme Partners, and Pzena Investment Management. In terms of the portfolio weights assigned to each position Theleme Partners allocated the biggest weight to Wells Fargo & Company (NYSE:WFC), around 34.81% of its 13F portfolio. Magnolia Capital Fund is also relatively very bullish on the stock, designating 34.27 percent of its 13F equity portfolio to WFC.

With a general bullishness amongst the heavyweights, key hedge funds have jumped into Wells Fargo & Company (NYSE:WFC) headfirst. Bridgewater Associates, managed by Ray Dalio, assembled the most valuable position in Wells Fargo & Company (NYSE:WFC). Bridgewater Associates had $47.5 million invested in the company at the end of the quarter. Stanley Druckenmiller’s Duquesne Capital also made a $46.7 million investment in the stock during the quarter. The following funds were also among the new WFC investors: Ravi Chopra’s Azora Capital, Michael Kharitonov and Jon David McAuliffe’s Voleon Capital, and Dan Juran’s Rings Capital Management.

Let’s go over hedge fund activity in other stocks similar to Wells Fargo & Company (NYSE:WFC). These stocks are Pfizer Inc. (NYSE:PFE), Novartis AG (NYSE:NVS), Comcast Corporation (NASDAQ:CMCSA), and Cisco Systems, Inc. (NASDAQ:CSCO). All of these stocks’ market caps are similar to WFC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PFE 62 4838507 4
NVS 30 2054513 2
CMCSA 87 6747748 -3
CSCO 68 4029813 3
Average 61.75 4417645 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 61.75 hedge funds with bullish positions and the average amount invested in these stocks was $4418 million. That figure was $23879 million in WFC’s case. Comcast Corporation (NASDAQ:CMCSA) is the most popular stock in this table. On the other hand Novartis AG (NYSE:NVS) is the least popular one with only 30 bullish hedge fund positions. Wells Fargo & Company (NYSE:WFC) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 WFC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on WFC were disappointed as the stock returned -48% 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 many of these stocks already outperformed the market so far this year.
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.