With the third-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the fourth quarter. One of these stocks was Waste Management, Inc. (NYSE:WM).
Is Waste Management, Inc. (NYSE:WM) undervalued? Prominent investors are getting less optimistic. The number of long hedge fund positions fell by 2 recently. Our calculations also showed that wm isn’t among the 30 most popular stocks among hedge funds.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 market by 18 percentage points since May 2014 through December 3, 2018 (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.
Cliff Asness of AQR Capital Management
Let’s analyze the key hedge fund action surrounding Waste Management, Inc. (NYSE:WM).
Hedge fund activity in Waste Management, Inc. (NYSE:WM)
At Q3’s end, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the second quarter of 2018. By comparison, 38 hedge funds held shares or bullish call options in WM heading into this year. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Bill & Melinda Gates Foundation Trust held the most valuable stake in Waste Management, Inc. (NYSE:WM), which was worth $1683.7 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $433.9 million worth of shares. Moreover, Two Sigma Advisors, Adage Capital Management, and D E Shaw were also bullish on Waste Management, Inc. (NYSE:WM), allocating a large percentage of their portfolios to this stock.
Due to the fact that Waste Management, Inc. (NYSE:WM) has witnessed a decline in interest from the aggregate hedge fund industry, it’s safe to say that there was a specific group of funds that elected to cut their entire stakes in the third quarter. At the top of the heap, Malcolm Fairbairn’s Ascend Capital sold off the largest stake of the 700 funds monitored by Insider Monkey, valued at close to $75.2 million in stock. John Brandmeyer’s fund, Cognios Capital, also sold off its stock, about $1.9 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 2 funds in the third quarter.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Waste Management, Inc. (NYSE:WM) but similarly valued. These stocks are Barclays PLC (NYSE:BCS), Credit Suisse Group AG (NYSE:CS), SYSCO Corporation (NYSE:SYY), and Applied Materials, Inc. (NASDAQ:AMAT). All of these stocks’ market caps are closest to WM’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BCS | 11 | 584129 | 4 |
| CS | 13 | 126319 | 0 |
| SYY | 31 | 3821036 | 11 |
| AMAT | 43 | 1985227 | -2 |
| Average | 24.5 | 1629178 | 3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $1.63 billion. That figure was $3.43 billion in WM’s case. Applied Materials, Inc. (NASDAQ:AMAT) is the most popular stock in this table. On the other hand Barclays PLC (NYSE:BCS) is the least popular one with only 11 bullish hedge fund positions. Waste Management, Inc. (NYSE:WM) 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. In this regard AMAT might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
