U.S. Markets closed

Should You Buy Weis Markets, Inc. (WMK)?

Reymerlyn Martin

We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds' top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That's why we believe it isn't a waste of time to check out hedge fund sentiment before you invest in a stock like Weis Markets, Inc. (NYSE:WMK).

Weis Markets, Inc. (NYSE:WMK) has experienced an increase in enthusiasm from smart money lately. Our calculations also showed that WMK isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

[caption id="attachment_746893" align="aligncenter" width="1613"] Paul Marshall of Marshall Wace[/caption]

Paul Marshall Marshall Wace

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world's largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to take a peek at the latest hedge fund action encompassing Weis Markets, Inc. (NYSE:WMK).

How are hedge funds trading Weis Markets, Inc. (NYSE:WMK)?

At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of 15% from the previous quarter. By comparison, 15 hedge funds held shares or bullish call options in WMK a year ago. With the smart money's capital changing hands, there exists a few key hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

Among these funds, Royce & Associates held the most valuable stake in Weis Markets, Inc. (NYSE:WMK), which was worth $27.1 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $9.8 million worth of shares. Citadel Investment Group, Marshall Wace, and Millennium Management 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 Zebra Capital Management allocated the biggest weight to Weis Markets, Inc. (NYSE:WMK), around 0.46% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, designating 0.25 percent of its 13F equity portfolio to WMK.

Consequently, some big names have been driving this bullishness. Algert Coldiron Investors, managed by Peter Algert and Kevin Coldiron, established the biggest position in Weis Markets, Inc. (NYSE:WMK). Algert Coldiron Investors had $0.4 million invested in the company at the end of the quarter. Noam Gottesman's GLG Partners also initiated a $0.2 million position during the quarter. The only other fund with a new position in the stock is Gavin Saitowitz and Cisco J. del Valle's Springbok Capital.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Weis Markets, Inc. (NYSE:WMK) but similarly valued. We will take a look at GreenTree Hospitality Group Ltd. (NYSE:GHG), HEXO Corp. (NYSE:HEXO), Cryolife Inc (NYSE:CRY), and Douglas Dynamics Inc (NYSE:PLOW). This group of stocks' market caps are similar to WMK's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GHG,7,23891,2 HEXO,7,9359,0 CRY,8,20061,-7 PLOW,10,19937,3 Average,8,18312,-0.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $18 million. That figure was $64 million in WMK's case. Douglas Dynamics Inc (NYSE:PLOW) is the most popular stock in this table. On the other hand GreenTree Hospitality Group Ltd. (NYSE:GHG) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Weis Markets, Inc. (NYSE:WMK) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately WMK wasn't nearly as popular as these 20 stocks and hedge funds that were betting on WMK were disappointed as the stock returned 5.2% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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

Related Content