Is WSO Stock A Buy or Sell?

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on December 31st. We at Insider Monkey have made an extensive database of more than 887 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Watsco Inc (NYSE:WSO) based on those filings.

Is WSO stock a buy? The best stock pickers were becoming less hopeful. The number of bullish hedge fund bets dropped by 5 recently. Watsco Inc (NYSE:WSO) was in 24 hedge funds’ portfolios at the end of December. The all time high for this statistic is 29. Our calculations also showed that WSO 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.

Tom Gayner of Markel Gayner Asset Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 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. With all of this in mind let’s check out the new hedge fund action encompassing Watsco Inc (NYSE:WSO).

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

At fourth quarter’s end, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the third quarter of 2020. Below, you can check out the change in hedge fund sentiment towards WSO over the last 22 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Markel Gayner Asset Management was the largest shareholder of Watsco Inc (NYSE:WSO), with a stake worth $90.4 million reported as of the end of December. Trailing Markel Gayner Asset Management was Motley Fool Asset Management, which amassed a stake valued at $40.8 million. Renaissance Technologies, AQR Capital Management, and Royce & Associates 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 Motley Fool Asset Management allocated the biggest weight to Watsco Inc (NYSE:WSO), around 3.05% of its 13F portfolio. Markel Gayner Asset Management is also relatively very bullish on the stock, dishing out 1.35 percent of its 13F equity portfolio to WSO.

Due to the fact that Watsco Inc (NYSE:WSO) has faced bearish sentiment from the smart money, it’s safe to say that there lies a certain “tier” of hedgies who sold off their full holdings heading into Q1. Intriguingly, Dmitry Balyasny’s Balyasny Asset Management dumped the biggest stake of the “upper crust” of funds monitored by Insider Monkey, worth about $4.4 million in stock, and Greg Eisner’s Engineers Gate Manager was right behind this move, as the fund dumped about $1.8 million worth. These transactions are important to note, as aggregate hedge fund interest dropped by 5 funds heading into Q1.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Watsco Inc (NYSE:WSO) but similarly valued. These stocks are IAA, Inc. (NYSE:IAA), BridgeBio Pharma, Inc. (NASDAQ:BBIO), The Mosaic Company (NYSE:MOS), Aluminum Corp. of China Limited (NYSE:ACH), The New York Times Company (NYSE:NYT), Tapestry, Inc. (NYSE:TPR), and Globant SA (NYSE:GLOB). This group of stocks’ market caps are closest to WSO’s market cap.

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As you can see these stocks had an average of 30.7 hedge funds with bullish positions and the average amount invested in these stocks was $1393 million. That figure was $243 million in WSO’s case. The New York Times Company (NYSE:NYT) is the most popular stock in this table. On the other hand Aluminum Corp. of China Limited (NYSE:ACH) is the least popular one with only 4 bullish hedge fund positions. Watsco Inc (NYSE:WSO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for WSO is 46.6. 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 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 still beat the market by 0.9 percentage points. A small number of hedge funds were also right about betting on WSO as the stock returned 26.8% since the end of the fourth quarter (through 4/19) and outperformed the market by an even larger margin.

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

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