Hedge fund managers like David Einhorn, Dan Loeb, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Waters Corporation (NYSE:WAT).
Hedge fund interest in Waters Corporation (NYSE:WAT) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Coach, Inc. (NYSE:COH), BRF Brasil Foods SA (ADR) (NYSE:BRFS), and Cimarex Energy Co (NYSE:XEC) to gather more data points.
Follow Waters Corp (NYSE:WAT)
Follow Waters Corp (NYSE:WAT)
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
Pressmaster/Shutterstock.com
Keeping this in mind, let’s take a look at the key action encompassing Waters Corporation (NYSE:WAT).
How have hedgies been trading Waters Corporation (NYSE:WAT)?
At Q3’s end, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, unchanged from the second quarter of 2016. With the smart money’s capital changing hands, there exists a select group of notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Generation Investment Management, managed by David Blood and Al Gore, holds the largest position in Waters Corporation (NYSE:WAT). According to regulatory filings, the fund has a $269.3 million position in the stock, comprising 2.9% of its 13F portfolio. The second largest stake is held by Robert Joseph Caruso of Select Equity Group, with a $116.4 million position; the fund has 1% of its 13F portfolio invested in the stock. Other professional money managers with similar optimism consist of Brian Bares’s Bares Capital Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Paul Marshall and Ian Wace’s Marshall Wace LLP.
Since Waters Corporation (NYSE:WAT) has witnessed no change in sentiment from the aggregate hedge fund industry, we will take a look at the few money managers that elected to cut their full holdings in the third quarter. Interestingly, Arthur B Cohen and Joseph Healey’s Healthcor Management LP sold off the largest position of the “upper crust” of funds followed by Insider Monkey, worth close to $13.4 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also cut its call options., about $9 million worth of call options. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks similar to Waters Corporation (NYSE:WAT). These stocks are Coach, Inc. (NYSE:COH), BRF Brasil Foods SA (ADR) (NYSE:BRFS), Cimarex Energy Co (NYSE:XEC), and L-3 Communications Holdings, Inc. (NYSE:LLL). This group of stocks’ market caps are closest to WAT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| COH | 32 | 220693 | -4 |
| BRFS | 8 | 172293 | -1 |
| XEC | 43 | 1635342 | 4 |
| LLL | 34 | 771957 | 1 |
As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $700 million. That figure was $632 million in WAT’s case. Cimarex Energy Co (NYSE:XEC) is the most popular stock in this table. On the other hand BRF Brasil Foods SA (ADR) (NYSE:BRFS) is the least popular one with only 8 bullish hedge fund positions. Waters Corporation (NYSE:WAT) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard XEC might be a better candidate to consider a long position.
Disclosure: none.
