Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (read our latest 10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The Insider Monkey team has completed processing the quarterly 13F filings for the December quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards W.W. Grainger, Inc. (NYSE:GWW).
W.W. Grainger, Inc. (NYSE:GWW) investors should be aware of an increase in hedge fund sentiment of late. GWW was in 29 hedge funds’ portfolios at the end of December. There were 25 hedge funds in our database with GWW positions at the end of the previous quarter. Our calculations also showed that GWW isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
John Overdeck of Two Sigma Advisors
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a look at the new hedge fund action surrounding W.W. Grainger, Inc. (NYSE:GWW).
What have hedge funds been doing with W.W. Grainger, Inc. (NYSE:GWW)?
At the end of the fourth quarter, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 16% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in GWW over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Alyeska Investment Group held the most valuable stake in W.W. Grainger, Inc. (NYSE:GWW), which was worth $113.5 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $106.1 million worth of shares. Citadel Investment Group, Two Sigma Advisors, and Millennium 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 Interval Partners allocated the biggest weight to W.W. Grainger, Inc. (NYSE:GWW), around 2.21% of its 13F portfolio. MIK Capital is also relatively very bullish on the stock, dishing out 2.12 percent of its 13F equity portfolio to GWW.
With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Interval Partners, managed by Gregg Moskowitz, initiated the most valuable position in W.W. Grainger, Inc. (NYSE:GWW). Interval Partners had $61.8 million invested in the company at the end of the quarter. Kamyar Khajavi’s MIK Capital also initiated a $6.1 million position during the quarter. The other funds with brand new GWW positions are Anthony Joseph Vaccarino’s North Fourth Asset Management, Sara Nainzadeh’s Centenus Global Management, and Ray Dalio’s Bridgewater Associates.
Let’s now review hedge fund activity in other stocks similar to W.W. Grainger, Inc. (NYSE:GWW). We will take a look at International Paper Company (NYSE:IP), Yum China Holdings, Inc. (NYSE:YUMC), CMS Energy Corporation (NYSE:CMS), and Marvell Technology Group Ltd. (NASDAQ:MRVL). This group of stocks’ market valuations are closest to GWW’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| IP | 25 | 272873 | -3 |
| YUMC | 29 | 699257 | -5 |
| CMS | 30 | 526352 | 0 |
| MRVL | 29 | 584397 | -5 |
| Average | 28.25 | 520720 | -3.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $521 million. That figure was $701 million in GWW’s case. CMS Energy Corporation (NYSE:CMS) is the most popular stock in this table. On the other hand International Paper Company (NYSE:IP) is the least popular one with only 25 bullish hedge fund positions. W.W. Grainger, Inc. (NYSE:GWW) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately GWW wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on GWW were disappointed as the stock returned -31.9% during the same time period 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.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
