Was The Smart Money Right About Piling Into Western Digital Corporation (WDC)?

In this article we will take a look at whether hedge funds think Western Digital Corporation (NASDAQ:WDC) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Western Digital Corporation (NASDAQ:WDC) was in 49 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 56. WDC investors should be aware of an increase in hedge fund sentiment recently. There were 45 hedge funds in our database with WDC positions at the end of the first quarter. Our calculations also showed that WDC isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

To the average investor there are many tools stock market investors put to use to analyze stocks. Two of the most under-the-radar tools are hedge fund and insider trading sentiment. Our researchers have shown that, historically, those who follow the best picks of the top hedge fund managers can trounce their index-focused peers by a superb amount (see the details here).

Harold Levy of Iridian Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Now let’s review the new hedge fund action regarding Western Digital Corporation (NASDAQ:WDC).

What have hedge funds been doing with Western Digital Corporation (NASDAQ:WDC)?

Heading into the third quarter of 2020, a total of 49 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from the previous quarter. On the other hand, there were a total of 25 hedge funds with a bullish position in WDC a year ago. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

Among these funds, Lyrical Asset Management held the most valuable stake in Western Digital Corporation (NASDAQ:WDC), which was worth $188.6 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $95.1 million worth of shares. Citadel Investment Group, Renaissance Technologies, and Iridian 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 KCL Capital allocated the biggest weight to Western Digital Corporation (NASDAQ:WDC), around 4.09% of its 13F portfolio. Scion Asset Management is also relatively very bullish on the stock, designating 3.78 percent of its 13F equity portfolio to WDC.

With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Alyeska Investment Group, managed by Anand Parekh, created the biggest position in Western Digital Corporation (NASDAQ:WDC). Alyeska Investment Group had $15.1 million invested in the company at the end of the quarter. Greg Poole’s Echo Street Capital Management also made a $2.6 million investment in the stock during the quarter. The other funds with brand new WDC positions are Joel Greenblatt’s Gotham Asset Management, Will Graves’s Boardman Bay Capital Management, and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Western Digital Corporation (NASDAQ:WDC) but similarly valued. These stocks are MongoDB, Inc. (NASDAQ:MDB), Tradeweb Markets Inc. (NASDAQ:TW), Mid America Apartment Communities Inc (NYSE:MAA), Liberty Global plc (NASDAQ:LBTYA), International Flavors & Fragrances Inc (NYSE:IFF), Duke Realty Corporation (NYSE:DRE), and Steris Plc (NYSE:STE). All of these stocks’ market caps match WDC’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.3 hedge funds with bullish positions and the average amount invested in these stocks was $576 million. That figure was $584 million in WDC’s case. Steris Plc (NYSE:STE) is the most popular stock in this table. On the other hand Duke Realty Corporation (NYSE:DRE) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Western Digital Corporation (NASDAQ:WDC) is more popular among hedge funds. Our overall hedge fund sentiment score for WDC is 85.3. 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 30% in 2020 through October 23rd and still beat the market by 21 percentage points. Unfortunately WDC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on WDC were disappointed as the stock returned -5.5% since the end of the second quarter (through 10/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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