Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (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. At Insider Monkey, we pore over the filings of nearly 835 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not WESCO International, Inc. (NYSE:WCC) makes for a good investment right now.
WESCO International, Inc. (NYSE:WCC) investors should be aware of an increase in enthusiasm from smart money lately. WCC was in 26 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 20 hedge funds in our database with WCC holdings at the end of the previous quarter. Our calculations also showed that WCC 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.
Ric Dillon of Diamond Hill Capital
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 go over the new hedge fund action encompassing WESCO International, Inc. (NYSE:WCC).
How have hedgies been trading WESCO International, Inc. (NYSE:WCC)?
Heading into the first quarter of 2020, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of 30% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in WCC over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Blue Harbour Group held the most valuable stake in WESCO International, Inc. (NYSE:WCC), which was worth $236.9 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $91.3 million worth of shares. Diamond Hill Capital, Polaris Capital Management, and Citadel Investment Group 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 Blue Harbour Group allocated the biggest weight to WESCO International, Inc. (NYSE:WCC), around 16.24% of its 13F portfolio. Peconic Partners LLC is also relatively very bullish on the stock, earmarking 2.62 percent of its 13F equity portfolio to WCC.
Consequently, key money managers have been driving this bullishness. Peconic Partners LLC, managed by William Harnisch, assembled the most valuable position in WESCO International, Inc. (NYSE:WCC). Peconic Partners LLC had $12.9 million invested in the company at the end of the quarter. Carl Tiedemann and Michael Tiedemann’s TIG Advisors also made a $10.7 million investment in the stock during the quarter. The other funds with brand new WCC positions are Joseph Samuels’s Islet Management, Sara Nainzadeh’s Centenus Global Management, and Louis Bacon’s Moore Global Investments.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as WESCO International, Inc. (NYSE:WCC) but similarly valued. We will take a look at Dorman Products Inc. (NASDAQ:DORM), Amicus Therapeutics, Inc. (NASDAQ:FOLD), Insight Enterprises, Inc. (NASDAQ:NSIT), and Ultragenyx Pharmaceutical Inc (NASDAQ:RARE). This group of stocks’ market caps are closest to WCC’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| DORM | 13 | 54185 | -2 |
| FOLD | 35 | 854075 | 7 |
| NSIT | 18 | 125686 | -3 |
| RARE | 18 | 210193 | -1 |
| Average | 21 | 311035 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $311 million. That figure was $631 million in WCC’s case. Amicus Therapeutics, Inc. (NASDAQ:FOLD) is the most popular stock in this table. On the other hand Dorman Products Inc. (NASDAQ:DORM) is the least popular one with only 13 bullish hedge fund positions. WESCO International, Inc. (NYSE:WCC) 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. 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 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately WCC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on WCC were disappointed as the stock returned -57.7% 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 many of these stocks already outperformed the market so far this year.
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.
