Were Expert Investors Right About Western Digital Corporation (WDC)?

Stocks, especially the once high flying technology stocks, had a lousy start to the new year. QQQ lost 9% of its value in January. We aren’t certain about the bubbly technology stocks that trade for ridiculously high multiples of their revenues, but we believe top hedge fund stocks will deliver positive returns for the rest of the year. In this article, we will take a closer look at hedge fund sentiment towards Western Digital Corporation (NASDAQ:WDC) at the end of the third quarter and determine whether the smart money was really smart about this stock.

Is Western Digital Corporation (NASDAQ:WDC) the right pick for your portfolio? Investors who are in the know were selling. The number of bullish hedge fund positions went down by 16 in recent months. Western Digital Corporation (NASDAQ:WDC) was in 41 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 58. Our calculations also showed that WDC isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). There were 57 hedge funds in our database with WDC holdings at the end of June.

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. With all of this in mind we’re going to take a glance at the fresh hedge fund action surrounding Western Digital Corporation (NASDAQ:WDC).

Tim Woolley of Polar Capital

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

At the end of September, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -28% from one quarter earlier. By comparison, 39 hedge funds held shares or bullish call options in WDC a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Lyrical Asset Management held the most valuable stake in Western Digital Corporation (NASDAQ:WDC), which was worth $239.1 million at the end of the third quarter. On the second spot was Point72 Asset Management which amassed $195.6 million worth of shares. Thunderbird Partners, Citadel Investment Group, and Polar Capital 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 Thunderbird Partners allocated the biggest weight to Western Digital Corporation (NASDAQ:WDC), around 12% of its 13F portfolio. Panview Capital is also relatively very bullish on the stock, dishing out 11.37 percent of its 13F equity portfolio to WDC.

Seeing as Western Digital Corporation (NASDAQ:WDC) has experienced a decline in interest from the smart money, it’s easy to see that there was a specific group of fund managers that slashed their positions entirely in the third quarter. At the top of the heap, Seth Wunder’s Black-and-White Capital cut the biggest stake of the 750 funds monitored by Insider Monkey, worth an estimated $40.7 million in stock, and James Dinan’s York Capital Management was right behind this move, as the fund dropped about $39.5 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 16 funds in the third quarter.

Let’s check out hedge fund activity in other stocks similar to Western Digital Corporation (NASDAQ:WDC). These stocks are Pool Corporation (NASDAQ:POOL), Shinhan Financial Group Co., Ltd. (NYSE:SHG), Rollins, Inc. (NYSE:ROL), Genuine Parts Company (NYSE:GPC), Nuance Communications Inc. (NASDAQ:NUAN), CMS Energy Corporation (NYSE:CMS), and Principal Financial Group Inc (NASDAQ:PFG). This group of stocks’ market values match WDC’s market value.

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As you can see these stocks had an average of 28.7 hedge funds with bullish positions and the average amount invested in these stocks was $1087 million. That figure was $1104 million in WDC’s case. Nuance Communications Inc. (NASDAQ:NUAN) is the most popular stock in this table. On the other hand Shinhan Financial Group Co., Ltd. (NYSE:SHG) is the least popular one with only 6 bullish hedge fund positions. Western Digital Corporation (NASDAQ:WDC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for WDC is 42. 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 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 beat the market again by 3.6 percentage points. Unfortunately, WDC wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on WDC were disappointed as the stock returned -8.3% since the end of September (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.

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