Here is What Hedge Funds Think About Western Digital Corporation (WDC)

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Western Digital Corporation (NASDAQ:WDC).

Is Western Digital Corporation (NASDAQ:WDC) an outstanding stock to buy now? The smart money was taking a pessimistic view. The number of bullish hedge fund positions dropped by 16 recently. Western Digital Corporation (NASDAQ:WDC) was in 41 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 58. Our calculations also showed that WDC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). There were 57 hedge funds in our database with WDC holdings at the end of June.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we’re going to check out the fresh hedge fund action encompassing Western Digital Corporation (NASDAQ:WDC).

Do Hedge Funds Think WDC Is A Good Stock To Buy Now?

At Q3’s end, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -28% from one quarter earlier. On the other hand, there were a total of 39 hedge funds with a bullish position in WDC a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Among these funds, Lyrical Asset Management held the most valuable stake in Western Digital Corporation (NASDAQ:WDC), which was worth $239.1 million at the end of the third quarter. On the second spot was Point72 Asset Management which amassed $195.6 million worth of shares. Thunderbird Partners, Citadel Investment Group, and Polar Capital 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 Thunderbird Partners allocated the biggest weight to Western Digital Corporation (NASDAQ:WDC), around 12% of its 13F portfolio. Panview Capital is also relatively very bullish on the stock, setting aside 11.37 percent of its 13F equity portfolio to WDC.

Due to the fact that Western Digital Corporation (NASDAQ:WDC) has witnessed falling interest from the entirety of the hedge funds we track, it’s safe to say that there is a sect of money managers that elected to cut their positions entirely heading into Q4. Intriguingly, Seth Wunder’s Black-and-White Capital dumped the largest stake of the “upper crust” of funds watched by Insider Monkey, worth about $40.7 million in stock. James Dinan’s fund, York Capital Management, also sold off its stock, about $39.5 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 16 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Western Digital Corporation (NASDAQ:WDC) but similarly valued. These stocks are Pool Corporation (NASDAQ:POOL), Shinhan Financial Group Co., Ltd. (NYSE:SHG), Rollins, Inc. (NYSE:ROL), Genuine Parts Company (NYSE:GPC), Nuance Communications Inc. (NASDAQ:NUAN), CMS Energy Corporation (NYSE:CMS), and Principal Financial Group Inc (NYSE:PFG). This group of stocks’ market caps match WDC’s market cap.

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As you can see these stocks had an average of 28.7 hedge funds with bullish positions and the average amount invested in these stocks was $1087 million. That figure was $1104 million in WDC’s case. Nuance Communications Inc. (NASDAQ:NUAN) is the most popular stock in this table. On the other hand Shinhan Financial Group Co., Ltd. (NYSE:SHG) is the least popular one with only 6 bullish hedge fund positions. Western Digital Corporation (NASDAQ:WDC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for WDC is 42. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 28.6% in 2021 through November 30th and beat the market again by 5.6 percentage points. Unfortunately WDC wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on WDC were disappointed as the stock returned 2.5% since the end of September (through 11/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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Disclosure: None. This article was originally published at Insider Monkey.

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