Is WAT A Good Stock To Buy According To Hedge Funds?

Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of September. At Insider Monkey, we follow nearly 817 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Waters Corporation (NYSE:WAT), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Is WAT a good stock to buy? Waters Corporation (NYSE:WAT) has experienced a decrease in support from the world’s most elite money managers lately. Waters Corporation (NYSE:WAT) was in 32 hedge funds’ portfolios at the end of September. The all time high for this statistic is 38. Our calculations also showed that WAT isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Dmitry Balyasny of Balyasny Asset Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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 website. Now we’re going to go over the latest hedge fund action surrounding Waters Corporation (NYSE:WAT).

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

At Q3’s end, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -16% from one quarter earlier. By comparison, 28 hedge funds held shares or bullish call options in WAT a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

Among these funds, D E Shaw held the most valuable stake in Waters Corporation (NYSE:WAT), which was worth $132.6 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $110.4 million worth of shares. Select Equity Group, Impax Asset Management, and Balyasny Asset Management 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 Fairpointe Capital allocated the biggest weight to Waters Corporation (NYSE:WAT), around 1.5% of its 13F portfolio. Impax Asset Management is also relatively very bullish on the stock, earmarking 0.83 percent of its 13F equity portfolio to WAT.

Due to the fact that Waters Corporation (NYSE:WAT) has experienced bearish sentiment from the smart money, logic holds that there was a specific group of money managers that elected to cut their positions entirely in the third quarter. It’s worth mentioning that Greg Poole’s Echo Street Capital Management dumped the largest stake of the “upper crust” of funds watched by Insider Monkey, worth an estimated $17.7 million in stock, and Paul Tudor Jones’s Tudor Investment Corp was right behind this move, as the fund dumped about $2.3 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 6 funds in the third quarter.

Let’s check out hedge fund activity in other stocks similar to Waters Corporation (NYSE:WAT). We will take a look at Jacobs Engineering Group Inc. (NYSE:J), Hewlett Packard Enterprise Company (NYSE:HPE), The AES Corporation (NYSE:AES), Fortune Brands Home & Security Inc (NYSE:FBHS), Qiagen NV (NASDAQ:QGEN), Solaredge Technologies Inc (NASDAQ:SEDG), and Zendesk Inc (NYSE:ZEN). This group of stocks’ market values resemble WAT’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $763 million. That figure was $928 million in WAT’s case. Zendesk Inc (NYSE:ZEN) is the most popular stock in this table. On the other hand Jacobs Engineering Group Inc. (NYSE:J) is the least popular one with only 27 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. Our overall hedge fund sentiment score for WAT is 32.1. 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. 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 percentage points. These stocks gained 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. A small number of hedge funds were also right about betting on WAT as the stock returned 28% since the end of the third quarter (through 12/18) and outperformed the market by an even larger margin.

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