Is WCC Stock A Buy or Sell?

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards WESCO International, Inc. (NYSE:WCC) to find out whether there were any major changes in hedge funds’ views.

Is WCC stock a buy? Investors who are in the know were taking a bearish view. The number of bullish hedge fund positions were trimmed by 6 in recent months. WESCO International, Inc. (NYSE:WCC) was in 23 hedge funds’ portfolios at the end of December. The all time high for this statistic is 34. Our calculations also showed that WCC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 124 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Ric Dillon of Diamond Hill Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. 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 fresh hedge fund action encompassing WESCO International, Inc. (NYSE:WCC).

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

At the end of December, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -21% from the previous quarter. By comparison, 26 hedge funds held shares or bullish call options in WCC a year ago. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

Among these funds, Leonard Green & Partners held the most valuable stake in WESCO International, Inc. (NYSE:WCC), which was worth $447.5 million at the end of the fourth quarter. On the second spot was Diamond Hill Capital which amassed $189.5 million worth of shares. Peconic Partners LLC, Arrowstreet Capital, 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 Peconic Partners LLC allocated the biggest weight to WESCO International, Inc. (NYSE:WCC), around 16.13% of its 13F portfolio. Leonard Green & Partners is also relatively very bullish on the stock, setting aside 6.19 percent of its 13F equity portfolio to WCC.

Judging by the fact that WESCO International, Inc. (NYSE:WCC) has faced falling interest from the entirety of the hedge funds we track, it’s easy to see that there were a few fund managers who were dropping their positions entirely heading into Q1. At the top of the heap, Bernard Horn’s Polaris Capital Management dumped the biggest position of the “upper crust” of funds monitored by Insider Monkey, valued at an estimated $37.7 million in stock. Clint Carlson’s fund, Carlson Capital, also dumped its stock, about $17.7 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 6 funds heading into Q1.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as WESCO International, Inc. (NYSE:WCC) but similarly valued. These stocks are Agora, Inc. (NASDAQ:API), Millicom International Cellular S.A. (NASDAQ:TIGO), Cardlytics, Inc. (NASDAQ:CDLX), Companhia Paranaense de Energia – COPEL (NYSE:ELP), Covetrus, Inc. (NASDAQ:CVET), Desktop Metal, Inc. (NYSE:DM), and Radian Group Inc (NYSE:RDN). This group of stocks’ market valuations are similar to WCC’s market valuation.

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As you can see these stocks had an average of 20.1 hedge funds with bullish positions and the average amount invested in these stocks was $426 million. That figure was $918 million in WCC’s case. Radian Group Inc (NYSE:RDN) is the most popular stock in this table. On the other hand Millicom International Cellular S.A. (NASDAQ:TIGO) is the least popular one with only 6 bullish hedge fund positions. WESCO International, Inc. (NYSE:WCC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for WCC is 46.7. 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 12.3% in 2021 through April 19th and beat the market again by 0.9 percentage points. Unfortunately WCC wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on WCC were disappointed as the stock returned 8.2% since the end of December (through 4/19) 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.

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