Were Hedge Funds Right About Avoiding Waste Management, Inc. (WM)?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Waste Management, Inc. (NYSE:WM).

Is Waste Management, Inc. (NYSE:WM) an exceptional investment today? The smart money was reducing their bets on the stock. The number of long hedge fund bets went down by 1 in recent months. Waste Management, Inc. (NYSE:WM) was in 39 hedge funds’ portfolios at the end of June. The all time high for this statistics is 52. Our calculations also showed that WM 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). There were 40 hedge funds in our database with WM holdings at the end of March.

Video: Watch our video about the top 5 most popular hedge fund stocks.

According to most shareholders, hedge funds are viewed as underperforming, outdated investment tools of the past. While there are over 8000 funds in operation today, We choose to focus on the top tier of this club, about 850 funds. These hedge fund managers orchestrate bulk of all hedge funds’ total asset base, and by shadowing their finest picks, Insider Monkey has deciphered various investment strategies that have historically outperformed Mr. Market. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

Robert Pohly of Samlyn Capital

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Hedge fund activity in Waste Management, Inc. (NYSE:WM)

At the end of the second quarter, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of -3% from the previous quarter. The graph below displays the number of hedge funds with bullish position in WM over the last 20 quarters. With hedge funds’ capital changing hands, there exists a few key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Michael Larson’s Bill & Melinda Gates Foundation Trust has the most valuable position in Waste Management, Inc. (NYSE:WM), worth close to $1.9735 billion, amounting to 11% of its total 13F portfolio. The second most bullish fund manager is AQR Capital Management, managed by Cliff Asness, which holds a $211 million position; 0.3% of its 13F portfolio is allocated to the stock. Some other professional money managers that are bullish comprise Ian Simm’s Impax Asset Management, John Overdeck and David Siegel’s Two Sigma Advisors and Renaissance Technologies. In terms of the portfolio weights assigned to each position Bill & Melinda Gates Foundation Trust allocated the biggest weight to Waste Management, Inc. (NYSE:WM), around 11.05% of its 13F portfolio. Ecofin Ltd is also relatively very bullish on the stock, setting aside 2.77 percent of its 13F equity portfolio to WM.

Judging by the fact that Waste Management, Inc. (NYSE:WM) has experienced a decline in interest from hedge fund managers, it’s safe to say that there lies a certain “tier” of money managers that elected to cut their full holdings in the second quarter. It’s worth mentioning that David Gallo’s Valinor Management LLC dumped the biggest position of the 750 funds watched by Insider Monkey, comprising an estimated $50.4 million in stock. Vikas Lunia’s fund, Lunia Capital, also dropped its stock, about $6.7 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 1 funds in the second quarter.

Let’s now review hedge fund activity in other stocks similar to Waste Management, Inc. (NYSE:WM). We will take a look at The PNC Financial Services Group Inc. (NYSE:PNC), Aon plc (NYSE:AON), Atlassian Corporation Plc (NASDAQ:TEAM), Honda Motor Co Ltd (NYSE:HMC), Workday Inc (NASDAQ:WDAY), Edwards Lifesciences Corporation (NYSE:EW), and Baxter International Inc. (NYSE:BAX). All of these stocks’ market caps match WM’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 50.1 hedge funds with bullish positions and the average amount invested in these stocks was $2350 million. That figure was $2845 million in WM’s case. Workday Inc (NASDAQ:WDAY) is the most popular stock in this table. On the other hand Honda Motor Co Ltd (NYSE:HMC) is the least popular one with only 10 bullish hedge fund positions. Waste Management, Inc. (NYSE:WM) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for WM is 49.5. 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 negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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 23% in 2020 through October 30th and surpassed the market again by 20.1 percentage points. Unfortunately WM wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); WM investors were disappointed as the stock returned 2.4% since the end of June (through 10/30) 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.