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Should I Avoid Walmart Inc. (WMT)?

·6 min read

Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of September. At Insider Monkey, we follow nearly 900 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Walmart Inc. (NYSE:WMT), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Walmart Inc. (NYSE:WMT) investors should pay attention to a decrease in activity from the world's largest hedge funds of late. Walmart Inc. (NYSE:WMT) was in 58 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 71. Our calculations also showed that WMT isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Donald Sussman Paloma Partners
Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, advertising technology one of the fastest growing industries right now, so we are checking out stock pitches like this under-the-radar adtech stock that can deliver 10x gains. We go through lists like the 10 best hydrogen fuel cell 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. 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 homepage. With all of this in mind let's go over the recent hedge fund action surrounding Walmart Inc. (NYSE:WMT).

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

At first quarter's end, a total of 58 of the hedge funds tracked by Insider Monkey were long this stock, a change of -17% from the previous quarter. By comparison, 55 hedge funds held shares or bullish call options in WMT a year ago. With the smart money's capital changing hands, there exists an "upper tier" of notable hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

Among these funds, Fisher Asset Management held the most valuable stake in Walmart Inc. (NYSE:WMT), which was worth $1659.1 million at the end of the fourth quarter. On the second spot was Bill & Melinda Gates Foundation Trust which amassed $1032.4 million worth of shares. Arrowstreet Capital, AQR Capital Management, and Bridgewater Associates 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 Empirical Capital Partners allocated the biggest weight to Walmart Inc. (NYSE:WMT), around 10.02% of its 13F portfolio. Pittencrieff Partners - Gabalex Capital is also relatively very bullish on the stock, designating 7.2 percent of its 13F equity portfolio to WMT.

Due to the fact that Walmart Inc. (NYSE:WMT) has faced bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there exists a select few money managers who were dropping their positions entirely by the end of the first quarter. Interestingly, Daniel S. Och's OZ Management said goodbye to the largest investment of the 750 funds followed by Insider Monkey, worth close to $201.8 million in stock. Martin Taylor's fund, Crake Asset Management, also dumped its stock, about $32.3 million worth. These transactions are important to note, as total hedge fund interest fell by 12 funds by the end of the first quarter.

Let's go over hedge fund activity in other stocks similar to Walmart Inc. (NYSE:WMT). We will take a look at Mastercard Incorporated (NYSE:MA), UnitedHealth Group Inc. (NYSE:UNH), The Walt Disney Company (NYSE:DIS), Bank of America Corporation (NYSE:BAC), The Procter & Gamble Company (NYSE:PG), NVIDIA Corporation (NASDAQ:NVDA), and The Home Depot, Inc. (NYSE:HD). This group of stocks' market caps are closest to WMT's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MA,151,17097200,-3 UNH,89,12091302,-2 DIS,134,12552763,-10 BAC,97,45321286,-2 PG,70,8539030,-13 NVDA,80,6204940,-8 HD,68,4359872,-11 Average,98.4,15166628,-7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 98.4 hedge funds with bullish positions and the average amount invested in these stocks was $15167 million. That figure was $5881 million in WMT's case. Mastercard Incorporated (NYSE:MA) is the most popular stock in this table. On the other hand The Home Depot, Inc. (NYSE:HD) is the least popular one with only 68 bullish hedge fund positions. Compared to these stocks Walmart Inc. (NYSE:WMT) is even less popular than HD. Our overall hedge fund sentiment score for WMT is 17.5. 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. Hedge funds dodged a bullet by taking a bearish stance towards WMT. Our calculations showed that the top 10 most popular hedge fund stocks returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.2% in 2021 through June 11th but managed to beat the market again by 3.3 percentage points. Unfortunately WMT wasn't nearly as popular as these 5 stocks (hedge fund sentiment was very bearish); WMT investors were disappointed as the stock returned 4% since the end of the first quarter (through 6/11) 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 most of these stocks already outperformed the market since 2019.

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

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