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Werner Enterprises, Inc. (WERN): Hedge Funds In Wait-and-See Mode

Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 24.4% during the first 9 months of 2019 and outperformed the broader market benchmark by 4 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Werner Enterprises, Inc. (NASDAQ:WERN) investors should pay attention to a decrease in hedge fund interest in recent months. Our calculations also showed that WERN isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Chuck Royce

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to view the recent hedge fund action surrounding Werner Enterprises, Inc. (NASDAQ:WERN).

What have hedge funds been doing with Werner Enterprises, Inc. (NASDAQ:WERN)?

At Q2’s end, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the previous quarter. The graph below displays the number of hedge funds with bullish position in WERN over the last 16 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with WERN Positions

The largest stake in Werner Enterprises, Inc. (NASDAQ:WERN) was held by AQR Capital Management, which reported holding $32.5 million worth of stock at the end of March. It was followed by Citadel Investment Group with a $26.8 million position. Other investors bullish on the company included Royce & Associates, Two Sigma Advisors, and Millennium Management.

Seeing as Werner Enterprises, Inc. (NASDAQ:WERN) has experienced bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of funds who were dropping their entire stakes heading into Q3. Intriguingly, Alexander Mitchell’s Scopus Asset Management dumped the biggest investment of the “upper crust” of funds followed by Insider Monkey, totaling close to $3.4 million in stock. Paul Tudor Jones’s fund, Tudor Investment Corp, also sold off its stock, about $1.5 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 1 funds heading into Q3.

Let’s check out hedge fund activity in other stocks similar to Werner Enterprises, Inc. (NASDAQ:WERN). We will take a look at Trustmark Corporation (NASDAQ:TRMK), InVitae Corporation (NYSE:NVTA), Commercial Metals Company (NYSE:CMC), and Zai Lab Limited (NASDAQ:ZLAB). All of these stocks’ market caps match WERN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TRMK 14 28099 3
NVTA 16 328969 -12
CMC 17 289611 6
ZLAB 17 240494 0
Average 16 221793 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $222 million. That figure was $111 million in WERN’s case. Commercial Metals Company (NYSE:CMC) is the most popular stock in this table. On the other hand Trustmark Corporation (NASDAQ:TRMK) is the least popular one with only 14 bullish hedge fund positions. Werner Enterprises, Inc. (NASDAQ:WERN) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. A small number of hedge funds were also right about betting on WERN as the stock returned 13.6% during the same time frame and outperformed the market by an even larger margin.

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

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