Were Hedge Funds Right About Warming Up To Waste Connections, Inc. (WCN)?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks aren’t doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to Waste Connections, Inc. (NYSE:WCN) changed recently.

Is Waste Connections, Inc. (NYSE:WCN) the right pick for your portfolio? Money managers were turning bullish. The number of long hedge fund bets improved by 6 lately. Waste Connections, Inc. (NYSE:WCN) was in 39 hedge funds’ portfolios at the end of June. The all time high for this statistics is 37. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that WCN 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 33 hedge funds in our database with WCN positions at the end of the first quarter.

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

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Dmitry Balyasny of Balyasny Asset Management

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. Now let’s review the fresh hedge fund action regarding Waste Connections, Inc. (NYSE:WCN).

What have hedge funds been doing with Waste Connections, Inc. (NYSE:WCN)?

At the end of June, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards WCN over the last 20 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Brad Dunkley and Blair Levinsky’s Waratah Capital Advisors has the most valuable position in Waste Connections, Inc. (NYSE:WCN), worth close to $230 million, accounting for 31.6% of its total 13F portfolio. On Waratah Capital Advisors’s heels is Renaissance Technologies, with a $175.9 million position; 0.2% of its 13F portfolio is allocated to the company. Some other professional money managers with similar optimism comprise James Parsons’s Junto Capital Management, Zach Schreiber’s Point State Capital and Greg Poole’s Echo Street Capital Management. In terms of the portfolio weights assigned to each position Waratah Capital Advisors allocated the biggest weight to Waste Connections, Inc. (NYSE:WCN), around 31.63% of its 13F portfolio. Galibier Capital Management is also relatively very bullish on the stock, dishing out 8.22 percent of its 13F equity portfolio to WCN.

Now, some big names were breaking ground themselves. Junto Capital Management, managed by James Parsons, established the most outsized position in Waste Connections, Inc. (NYSE:WCN). Junto Capital Management had $41 million invested in the company at the end of the quarter. Zach Schreiber’s Point State Capital also made a $38.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Dmitry Balyasny’s Balyasny Asset Management, John Brennan’s Sirios Capital Management, and Louis Bacon’s Moore Global Investments.

Let’s now take a look at hedge fund activity in other stocks similar to Waste Connections, Inc. (NYSE:WCN). These stocks are Telefonica S.A. (NYSE:TEF), Otis Worldwide Corporation (NYSE:OTIS), Fastenal Company (NASDAQ:FAST), Barclays PLC (NYSE:BCS), STMicroelectronics N.V. (NYSE:STM), Nikola Corporation (NASDAQ:NKLA), and Marathon Petroleum Corp (NYSE:MPC). This group of stocks’ market caps are closest to WCN’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.6 hedge funds with bullish positions and the average amount invested in these stocks was $810 million. That figure was $721 million in WCN’s case. Marathon Petroleum Corp (NYSE:MPC) is the most popular stock in this table. On the other hand Telefonica S.A. (NYSE:TEF) is the least popular one with only 6 bullish hedge fund positions. Waste Connections, Inc. (NYSE:WCN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for WCN is 69.5. 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 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 WCN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on WCN were disappointed as the stock returned 6.3% 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.