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 (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the fourth quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4 years and analyze what the smart money thinks of Westlake Chemical Corporation (NYSE:WLK) based on that data.
Westlake Chemical Corporation (NYSE:WLK) investors should be aware of an increase in activity from the world’s largest hedge funds in recent months. WLK was in 22 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 18 hedge funds in our database with WLK holdings at the end of the previous quarter. Our calculations also showed that WLK 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).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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.
Michael Price of MFP Investors
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. 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 let’s analyze the recent hedge fund action surrounding Westlake Chemical Corporation (NYSE:WLK).
What does smart money think about Westlake Chemical Corporation (NYSE:WLK)?
At the end of the fourth quarter, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 22% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards WLK over the last 18 quarters. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
More specifically, Maverick Capital was the largest shareholder of Westlake Chemical Corporation (NYSE:WLK), with a stake worth $162.2 million reported as of the end of September. Trailing Maverick Capital was Adage Capital Management, which amassed a stake valued at $67.4 million. Millennium Management, Sprott Asset Management, and MFP Investors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Maverick Capital allocated the biggest weight to Westlake Chemical Corporation (NYSE:WLK), around 2.36% of its 13F portfolio. Sprott Asset Management is also relatively very bullish on the stock, setting aside 2.03 percent of its 13F equity portfolio to WLK.
As aggregate interest increased, key money managers were breaking ground themselves. Centenus Global Management, managed by Sara Nainzadeh, established the most valuable position in Westlake Chemical Corporation (NYSE:WLK). Centenus Global Management had $4.6 million invested in the company at the end of the quarter. Renaissance Technologies also made a $2.5 million investment in the stock during the quarter. The following funds were also among the new WLK investors: Larry Foley and Paul Farrell’s Bronson Point Partners, Louis Bacon’s Moore Global Investments, and Mika Toikka’s AlphaCrest Capital Management.
Let’s now take a look at hedge fund activity in other stocks similar to Westlake Chemical Corporation (NYSE:WLK). These stocks are Jones Lang LaSalle Inc (NYSE:JLL), Lamar Advertising Co (NASDAQ:LAMR), BorgWarner Inc. (NYSE:BWA), and Interpublic Group of Companies Inc (NYSE:IPG). This group of stocks’ market valuations resemble WLK’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| JLL | 30 | 1283217 | -1 |
| LAMR | 28 | 251922 | -5 |
| BWA | 27 | 737869 | 1 |
| IPG | 26 | 755208 | -1 |
| Average | 27.75 | 757054 | -1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.75 hedge funds with bullish positions and the average amount invested in these stocks was $757 million. That figure was $336 million in WLK’s case. Jones Lang LaSalle Inc (NYSE:JLL) is the most popular stock in this table. On the other hand Interpublic Group of Companies Inc (NYSE:IPG) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks Westlake Chemical Corporation (NYSE:WLK) is even less popular than IPG. Hedge funds dodged a bullet by taking a bearish stance towards WLK. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but managed to beat the market by 3.2 percentage points. Unfortunately WLK wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); WLK investors were disappointed as the stock returned -57.2% 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 20 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in Q1.
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.
