Shares of Williams Companies, Inc. (NYSE:WMB) are trading over 5% higher in morning trading today as acquisition rumors continue to swirl around the company. Reports on August 14 suggested that Spectra Energy Corp (NYSE:SE) has joined the race to acquire Williams Companies, Inc. (NYSE:WMB), in addition to already-interested parties like Energy Transfer Equity Lp (NYSE:ETE) and Kinder Morgan Inc (NYSE:KMI). Williams Companies, Inc. (NYSE:WMB) shares spiked as high as $61, jumping by nearly 26% on June 21 following a report that the it had rejected a $48 billion or $64 per share takeover offer from Energy Transfer Equity Lp (NYSE:ETE). However, the stock had dropped by around 20% in the following weeks, dropping back to as low as $48.53 per share before embarking on its latest upswing as the acquisition story has gained momentum, propelling the stock upwards by around 13% in the last seven trading days, including the 5% jump in trading today. According to the latest reports, while Williams Companies, Inc. (NYSE:WMB) has collected all of the bids from the initial round of bidding, it is expected to collect more bids until the end of August.
Many hedge funds which held large positions in the stock at the end of March gained big during the 26% jump on June 21, including Corvex Capital, managed by activist Keith Meister, which held a large position of 41.68 million shares that was valued at $2.11 billion at the end of the first quarter, comprising 25.5% of its 13F portfolio. Keith Meister’s hedge fund did not make changes to its holding in Williams Companies, Inc. (NYSE:WMB) during the April-June quarter according to its most recent 13F filing. Similarly, Soroban Capital Partners led by Eric W. Mandelblatt also maintained its holding in the stock during the second quarter, according to its latest 13F filing. According to the 13F filing of Stephen Mandel‘s Lone Pipe Capital, the hedge fund decided to purchase another 2.0 million shares of Williams during the second quarter, holding around 13.9 million shares by the end of June.
Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because as a group their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research have shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return more than 118% over the last 35 months and outperformed the S&P 500 Index by 60 percentage points (see the details here).
Likewise, other research (not our own) has shown insider purchases are also effective piggybacking methods for investors that can lead to greater returns. That’s why we believe investors should pay attention to what hedge funds and insiders are buying and keep them apprised of this information. Looking at Williams Companies, Inc. (NYSE:WMB) there have been no insider purchase of shares so far in 2015, but there have been quite a few insider sales. The latest insider action was conducted by Senior Vice President at Williams, Robyn Ewing, as she sold around 3,500 shares on August 3. Ewing has sold around 69,000 shares so far this year. Another Senior Vice President at Williams, Brian Perilloux, sold around 20,000 shares in March.
On the whole how did hedge funds trade Williams Companies, Inc. (NYSE:WMB) during the second quarter?
According to Insider Monkey’s database, there was capital inflow into the stock during the second trimester as there were 86 hedge funds with investments in the stock worth $10.6 billion on June 30 compared to only 60 hedge funds with $6.6 billion in holdings at the end of March. Considering the fact that the stock has appreciated by 14% during the second quarter, we can say that hedge funds were bullish on the stock. Also, investors did not consider this stock to be overvalued, as nearly 25% of the company’s outstanding shares were held by hedge funds at the end of June.
Overall, hedge funds were bullish on the stock, as many hedge funds opted to open fresh positions in the stock during the second quarter, whereas many large shareholders opted to hold onto their positions or strengthen their positions in the stock during the April – June quarter. As the acquisition plot continues to thicken, we can expect more gains from this stock over the next few weeks as a possible bidding war heats up for its acquisition. Considering the bullish hedge fund sentiment on the stock, we recommend buying Williams Companies at the moment.
Disclosure: None
