Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients’ money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds.
Select Energy Services, Inc. (NYSE:WTTR) was in 11 hedge funds’ portfolios at the end of June. WTTR investors should be aware of a decrease in enthusiasm from smart money recently. There were 15 hedge funds in our database with WTTR positions at the end of the previous quarter. Our calculations also showed that WTTR isn’t among the 30 most popular stocks among hedge funds (see the video below).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to check out the key hedge fund action surrounding Select Energy Services, Inc. (NYSE:WTTR).
How are hedge funds trading Select Energy Services, Inc. (NYSE:WTTR)?
At the end of the second quarter, a total of 11 of the hedge funds tracked by Insider Monkey were long this stock, a change of -27% from the previous quarter. By comparison, 11 hedge funds held shares or bullish call options in WTTR a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Adage Capital Management was the largest shareholder of Select Energy Services, Inc. (NYSE:WTTR), with a stake worth $15.7 million reported as of the end of March. Trailing Adage Capital Management was Arosa Capital Management, which amassed a stake valued at $13.2 million. Perella Weinberg Partners, Water Asset Management, and Gotham Asset Management were also very fond of the stock, giving the stock large weights in their portfolios.
Because Select Energy Services, Inc. (NYSE:WTTR) has experienced declining sentiment from the entirety of the hedge funds we track, logic holds that there was a specific group of hedgies that elected to cut their entire stakes in the second quarter. Intriguingly, John R. Wagner’s SCW Capital Management dumped the biggest stake of the 750 funds tracked by Insider Monkey, valued at close to $11.1 million in stock. Todd J. Kantor’s fund, Encompass Capital Advisors, also dumped its stock, about $10.4 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 4 funds in the second quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Select Energy Services, Inc. (NYSE:WTTR) but similarly valued. We will take a look at FB Financial Corporation (NYSE:FBK), MGP Ingredients Inc (NASDAQ:MGPI), Radius Health Inc (NASDAQ:RDUS), and Patrick Industries, Inc. (NASDAQ:PATK). All of these stocks’ market caps match WTTR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FBK | 4 | 89082 | -1 |
| MGPI | 7 | 24316 | -6 |
| RDUS | 16 | 327584 | -6 |
| PATK | 15 | 86609 | -2 |
| Average | 10.5 | 131898 | -3.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $132 million. That figure was $41 million in WTTR’s case. Radius Health Inc (NASDAQ:RDUS) is the most popular stock in this table. On the other hand FB Financial Corporation (NYSE:FBK) is the least popular one with only 4 bullish hedge fund positions. Select Energy Services, Inc. (NYSE:WTTR) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately WTTR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on WTTR were disappointed as the stock returned -25.4% during the third quarter 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.
Disclosure: None. This article was originally published at Insider Monkey.
