Were Hedge Funds Right About Wabtec Corporation (WAB)?

In this article you are going to find out whether hedge funds think Wabtec Corporation (NYSE:WAB) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is Wabtec Corporation (NYSE:WAB) worth your attention right now? Money managers were in a bearish mood. The number of bullish hedge fund bets were trimmed by 2 recently. Wabtec Corporation (NYSE:WAB) was in 39 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 41. Our calculations also showed that WAB 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 41 hedge funds in our database with WAB positions at the end of the first quarter.

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

If you’d ask most stock holders, hedge funds are viewed as worthless, old financial vehicles of the past. While there are greater than 8000 funds in operation at present, We choose to focus on the leaders of this club, about 850 funds. Most estimates calculate that this group of people direct the majority of the smart money’s total capital, and by tracking their best stock picks, Insider Monkey has unearthed numerous investment strategies that have historically outrun the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outrun 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 .

John Zaro of Bourgeon Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging 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. With all of this in mind we’re going to check out the recent hedge fund action encompassing Wabtec Corporation (NYSE:WAB).

How are hedge funds trading Wabtec Corporation (NYSE:WAB)?

Heading into the third quarter of 2020, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the first quarter of 2020. On the other hand, there were a total of 27 hedge funds with a bullish position in WAB a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Pzena Investment Management, managed by Richard S. Pzena, holds the most valuable position in Wabtec Corporation (NYSE:WAB). Pzena Investment Management has a $358.8 million position in the stock, comprising 2.3% of its 13F portfolio. The second most bullish fund manager is Farallon Capital, with a $249 million position; the fund has 2% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism consist of Boykin Curry’s Eagle Capital Management, Munir Javeri’s 3G Sahana Capital Management and Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC. In terms of the portfolio weights assigned to each position 3G Sahana Capital Management allocated the biggest weight to Wabtec Corporation (NYSE:WAB), around 23.43% of its 13F portfolio. Park Presidio Capital is also relatively very bullish on the stock, dishing out 8.54 percent of its 13F equity portfolio to WAB.

Due to the fact that Wabtec Corporation (NYSE:WAB) has faced a decline in interest from hedge fund managers, we can see that there is a sect of money managers that elected to cut their full holdings last quarter. At the top of the heap, Robert Pohly’s Samlyn Capital cut the biggest position of all the hedgies monitored by Insider Monkey, worth close to $25.7 million in stock. Vinit Bodas’s fund, Deccan Value Advisors, also said goodbye to its stock, about $18.9 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest fell by 2 funds last quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Wabtec Corporation (NYSE:WAB) but similarly valued. We will take a look at Logitech International SA (NASDAQ:LOGI), Nordson Corporation (NASDAQ:NDSN), DraftKings Inc. (NASDAQ:DKNG), PerkinElmer, Inc. (NYSE:PKI), Cloudflare, Inc. (NYSE:NET), Horizon Therapeutics Public Limited Company (NASDAQ:HZNP), and ABIOMED, Inc. (NASDAQ:ABMD). This group of stocks’ market values are closest to WAB’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.7 hedge funds with bullish positions and the average amount invested in these stocks was $934 million. That figure was $1528 million in WAB’s case. DraftKings Inc. (NASDAQ:DKNG) is the most popular stock in this table. On the other hand Logitech International SA (NASDAQ:LOGI) is the least popular one with only 13 bullish hedge fund positions. Wabtec Corporation (NYSE:WAB) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for WAB is 64. 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 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 beat the market again by 20.1 percentage points. Unfortunately WAB wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on WAB were disappointed as the stock returned 3.2% 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 many of these stocks already outperformed the market so far this year.

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