We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Watsco Inc (NYSE:WSO) and determine whether hedge funds skillfully traded this stock.
Watsco Inc (NYSE:WSO) has seen an increase in support from the world’s most elite money managers of late. Watsco Inc (NYSE:WSO) was in 30 hedge funds’ portfolios at the end of September. The all time high for this statistic was previously 29. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that WSO isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).
Richard Driehaus of Driehaus Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind let’s take a look at the key hedge fund action regarding Watsco Inc (NYSE:WSO).
Do Hedge Funds Think WSO Is A Good Stock To Buy Now?
At Q3’s end, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of 15% from the previous quarter. By comparison, 29 hedge funds held shares or bullish call options in WSO a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).
More specifically, Markel Gayner Asset Management was the largest shareholder of Watsco Inc (NYSE:WSO), with a stake worth $109.6 million reported as of the end of September. Trailing Markel Gayner Asset Management was Citadel Investment Group, which amassed a stake valued at $63.1 million. Motley Fool Asset Management, AQR Capital 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 Motley Fool Asset Management allocated the biggest weight to Watsco Inc (NYSE:WSO), around 3.14% of its 13F portfolio. Markel Gayner Asset Management is also relatively very bullish on the stock, earmarking 1.39 percent of its 13F equity portfolio to WSO.
As one would reasonably expect, some big names were leading the bulls’ herd. Point72 Asset Management, managed by Steve Cohen, assembled the most valuable position in Watsco Inc (NYSE:WSO). Point72 Asset Management had $6.9 million invested in the company at the end of the quarter. Richard Driehaus’s Driehaus Capital also initiated a $5.6 million position during the quarter. The other funds with brand new WSO positions are Clint Carlson’s Carlson Capital, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Gavin Saitowitz and Cisco J. del Valle’s Prelude Capital (previously Springbok Capital).
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 agilon health inc. (NYSE:AGL), Oak Street Health, Inc. (NYSE:OSH), QuantumScape Corporation (NYSE:QS), CureVac N.V. (NASDAQ:CVAC), First Solar, Inc. (NASDAQ:FSLR), Brookfield Renewable Partners L.P. (NYSE:BEP), and Magellan Midstream Partners, L.P. (NYSE:MMP). This group of stocks’ market caps are similar to WSO’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AGL | 18 | 270101 | 18 |
| OSH | 19 | 395210 | -14 |
| QS | 25 | 197413 | -1 |
| CVAC | 10 | 45690 | -2 |
| FSLR | 31 | 266584 | 0 |
| BEP | 17 | 145164 | -3 |
| MMP | 12 | 92094 | -1 |
| Average | 18.9 | 201751 | -0.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.9 hedge funds with bullish positions and the average amount invested in these stocks was $202 million. That figure was $415 million in WSO’s case. First Solar, Inc. (NASDAQ:FSLR) is the most popular stock in this table. On the other hand CureVac N.V. (NASDAQ:CVAC) is the least popular one with only 10 bullish hedge fund positions. Watsco Inc (NYSE:WSO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for WSO is 86.6. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and still beat the market by 3.6 percentage points. Hedge funds were also right about betting on WSO as the stock returned 8.2% since the end of Q3 (through 1/31) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Follow Watsco Inc (NYSE:WSO; WSOB)
Follow Watsco Inc (NYSE:WSO; WSOB)
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Disclosure: None. This article was originally published at Insider Monkey.
