We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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 take a look at whether WestAmerica Bancorp. (NASDAQ:WABC) is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
WestAmerica Bancorp. (NASDAQ:WABC) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 11 hedge funds’ portfolios at the end of December. At the end of this article we will also compare WABC to other stocks including Heartland Financial USA Inc (NASDAQ:HTLF), Onto Innovation Inc. (NYSE:ONTO), and Comfort Systems USA, Inc. (NYSE:FIX) to get a better sense of its popularity.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Dmitry Balyasny of Balyasny Asset Management
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now we’re going to check out the new hedge fund action regarding WestAmerica Bancorp. (NASDAQ:WABC).
What have hedge funds been doing with WestAmerica Bancorp. (NASDAQ:WABC)?
Heading into the first quarter of 2020, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the third quarter of 2019. By comparison, 5 hedge funds held shares or bullish call options in WABC a year ago. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).
The largest stake in WestAmerica Bancorp. (NASDAQ:WABC) was held by Balyasny Asset Management, which reported holding $11.2 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $4.9 million position. Other investors bullish on the company included Renaissance Technologies, Arrowstreet Capital, and Millennium Management. In terms of the portfolio weights assigned to each position Balyasny Asset Management allocated the biggest weight to WestAmerica Bancorp. (NASDAQ:WABC), around 0.07% of its 13F portfolio. Tudor Investment Corp is also relatively very bullish on the stock, designating 0.04 percent of its 13F equity portfolio to WABC.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Winton Capital Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Schonfeld Strategic Advisors).
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as WestAmerica Bancorp. (NASDAQ:WABC) but similarly valued. These stocks are Heartland Financial USA Inc (NASDAQ:HTLF), Onto Innovation Inc. (NYSE:ONTO), Comfort Systems USA, Inc. (NYSE:FIX), and New York Mortgage Trust, Inc. (NASDAQ:NYMT). All of these stocks’ market caps resemble WABC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HTLF | 8 | 14951 | -2 |
| ONTO | 14 | 167125 | -4 |
| FIX | 24 | 137894 | 1 |
| NYMT | 15 | 71598 | 4 |
| Average | 15.25 | 97892 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $98 million. That figure was $28 million in WABC’s case. Comfort Systems USA, Inc. (NYSE:FIX) is the most popular stock in this table. On the other hand Heartland Financial USA Inc (NASDAQ:HTLF) is the least popular one with only 8 bullish hedge fund positions. WestAmerica Bancorp. (NASDAQ:WABC) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but still beat the market by 4.2 percentage points. A small number of hedge funds were also right about betting on WABC as the stock returned -12% during the same time period and outperformed the market by an even larger margin.
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.
