Do Hedge Funds Love West Pharmaceutical Services Inc. (WST)?

Billionaire hedge fund managers such as Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.

West Pharmaceutical Services Inc. (NYSE:WST) investors should pay attention to an increase in enthusiasm from smart money lately. 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 STERIS Corp (NYSE:STE), ON Semiconductor Corp (NASDAQ:ON), and USG Corporation (NYSE:USG) to gather more data points.

To the average investor there are tons of metrics stock market investors put to use to grade publicly traded companies. A couple of the most innovative metrics are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the top hedge fund managers can outperform the market by a very impressive amount (see the details here).

Now, let’s go over the new action encompassing West Pharmaceutical Services Inc. (NYSE:WST).

How are hedge funds trading West Pharmaceutical Services Inc. (NYSE:WST)?

At Q3’s end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 100% from the second quarter. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Ken Fisher’s Fisher Asset Management has the most valuable position in West Pharmaceutical Services Inc. (NYSE:WST), worth close to $67.6 million, amounting to 0.1% of its total 13F portfolio. Coming in second is Renaissance Technologies, which holds a $32.4 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism encompass Robert Joseph Caruso’s Select Equity Group, Glenn Russell Dubin’s Highbridge Capital Management and Matthew Hulsizer’s PEAK6 Capital Management.

Consequently, some big names were leading the bulls’ herd. Select Equity Group initiated the most valuable position in West Pharmaceutical Services Inc. (NYSE:WST). Select Equity Group had $31.5 million invested in the company at the end of the quarter. Highbridge Capital Management also made a $3.3 million investment in the stock during the quarter. The other funds with new positions in the stock are PEAK6 Capital Management, Matthew Tewksbury’s Stevens Capital Management, and Peter Muller’s PDT Partners.

Let’s also examine hedge fund activity in other stocks similar to West Pharmaceutical Services Inc. (NYSE:WST). These stocks are STERIS Corp (NYSE:STE), ON Semiconductor Corp (NASDAQ:ON), USG Corporation (NYSE:USG), and The Toro Company (NYSE:TTC). This group of stocks’ market caps match WST’s market cap.

As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $580 million, significantly higher than the $140 million in WST’s case. ON Semiconductor Corp (NASDAQ:ON) is the most popular stock in this table. On the other hand The Toro Company (NYSE:TTC) is the least popular one with only 21 bullish hedge fund positions. Compared to these stocks West Pharmaceutical Services Inc. (NYSE:WST) is even less popular than TTC. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.