Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about The Sherwin-Williams Company (NYSE:SHW).
Is SHW stock a buy or sell? The Sherwin-Williams Company (NYSE:SHW) was in 49 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 57. SHW investors should be aware of a decrease in enthusiasm from smart money in recent months. There were 55 hedge funds in our database with SHW holdings at the end of September. Our calculations also showed that SHW isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 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 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Richard Chilton of Chilton Investment Company
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage (or at the end of this article). With all of this in mind let’s analyze the recent hedge fund action encompassing The Sherwin-Williams Company (NYSE:SHW).
Do Hedge Funds Think SHW Is A Good Stock To Buy Now?
At Q4’s end, a total of 49 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SHW over the last 22 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Richard Chilton’s Chilton Investment Company has the biggest position in The Sherwin-Williams Company (NYSE:SHW), worth close to $305.3 million, corresponding to 8.7% of its total 13F portfolio. Coming in second is Farallon Capital, with a $286.1 million position; the fund has 1.9% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that hold long positions comprise Ric Dillon’s Diamond Hill Capital, John Overdeck and David Siegel’s Two Sigma Advisors and Greg Poole’s Echo Street Capital Management. In terms of the portfolio weights assigned to each position Chilton Investment Company allocated the biggest weight to The Sherwin-Williams Company (NYSE:SHW), around 8.71% of its 13F portfolio. Bluegrass Capital Partners is also relatively very bullish on the stock, dishing out 8.18 percent of its 13F equity portfolio to SHW.
Since The Sherwin-Williams Company (NYSE:SHW) has experienced bearish sentiment from hedge fund managers, it’s safe to say that there was a specific group of money managers who were dropping their positions entirely heading into Q1. Intriguingly, Anand Parekh’s Alyeska Investment Group said goodbye to the biggest position of the “upper crust” of funds tracked by Insider Monkey, valued at about $22 million in stock. Ray Dalio’s fund, Bridgewater Associates, also said goodbye to its stock, about $10.8 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest fell by 6 funds heading into Q1.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as The Sherwin-Williams Company (NYSE:SHW) but similarly valued. These stocks are The Bank of Nova Scotia (NYSE:BNS), CME Group Inc (NASDAQ:CME), NetEase, Inc (NASDAQ:NTES), The Southern Company (NYSE:SO), Enbridge Inc (NYSE:ENB), Intercontinental Exchange Inc (NYSE:ICE), and Truist Financial Corporation (NYSE:TFC). All of these stocks’ market caps resemble SHW’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BNS | 19 | 336708 | 5 |
| CME | 58 | 2275518 | -1 |
| NTES | 38 | 3467820 | -7 |
| SO | 32 | 400160 | 7 |
| ENB | 28 | 181170 | 3 |
| ICE | 53 | 3273294 | -11 |
| TFC | 40 | 526377 | 11 |
| Average | 38.3 | 1494435 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 38.3 hedge funds with bullish positions and the average amount invested in these stocks was $1494 million. That figure was $1881 million in SHW’s case. CME Group Inc (NASDAQ:CME) is the most popular stock in this table. On the other hand The Bank of Nova Scotia (NYSE:BNS) is the least popular one with only 19 bullish hedge fund positions. The Sherwin-Williams Company (NYSE:SHW) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SHW is 63.3. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and beat the market again by 0.8 percentage points. Unfortunately SHW wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on SHW were disappointed as the stock returned -3.7% since the end of December (through 3/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
Follow Sherwin Williams Co (NYSE:SHW)
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Disclosure: None. This article was originally published at Insider Monkey.
