We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We at Insider Monkey have gone over 835 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds' and investors' portfolio positions as of December 31st. In this article, we look at what those funds think of WestRock Company (NYSE:WRK) based on that data.
Is WestRock Company (NYSE:WRK) ready to rally soon? Prominent investors are betting on the stock. The number of bullish hedge fund positions inched up by 3 in recent months. Our calculations also showed that WRK isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). Video: Click the image to 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_26340" align="aligncenter" width="400"] Ken Griffin of Citadel Investment Group[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind let's take a gander at the new hedge fund action surrounding WestRock Company (NYSE:WRK).
How have hedgies been trading WestRock Company (NYSE:WRK)?
Heading into the first quarter of 2020, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 9% from the third quarter of 2019. On the other hand, there were a total of 29 hedge funds with a bullish position in WRK a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Ken Griffin's Citadel Investment Group has the number one position in WestRock Company (NYSE:WRK), worth close to $245.5 million, comprising 0.1% of its total 13F portfolio. On Citadel Investment Group's heels is Impax Asset Management, led by Ian Simm, holding a $142.3 million position; the fund has 1.6% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that hold long positions contain Israel Englander's Millennium Management, Anthony Bozza's Lakewood Capital Management and Michael Cowley's Sandbar Asset Management. In terms of the portfolio weights assigned to each position Sandbar Asset Management allocated the biggest weight to WestRock Company (NYSE:WRK), around 11.01% of its 13F portfolio. Atlantic Investment Management is also relatively very bullish on the stock, setting aside 10.8 percent of its 13F equity portfolio to WRK.
As one would reasonably expect, key hedge funds were leading the bulls' herd. Cinctive Capital Management, managed by Richard SchimeláandáLawrence Sapanski, initiated the biggest position in WestRock Company (NYSE:WRK). Cinctive Capital Management had $10.3 million invested in the company at the end of the quarter. Andrew Byington's Appian Way Asset Management also initiated a $9.6 million position during the quarter. The following funds were also among the new WRK investors: Alexander Mitchell's Scopus Asset Management, Robert Vincent McHugh's Jade Capital Advisors, and Jon Bauer's Contrarian Capital.
Let's also examine hedge fund activity in other stocks similar to WestRock Company (NYSE:WRK). We will take a look at Bio-Rad Laboratories, Inc. (NYSE:BIO), Tractor Supply Company (NASDAQ:TSCO), StoneCo Ltd. (NASDAQ:STNE), and Elanco Animal Health Incorporated (NYSE:ELAN). All of these stocks' market caps resemble WRK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BIO,44,1030931,0 TSCO,44,696994,3 STNE,29,1474730,1 ELAN,23,620585,-4 Average,35,955810,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 35 hedge funds with bullish positions and the average amount invested in these stocks was $956 million. That figure was $765 million in WRK's case. Bio-Rad Laboratories, Inc. (NYSE:BIO) is the most popular stock in this table. On the other hand Elanco Animal Health Incorporated (NYSE:ELAN) is the least popular one with only 23 bullish hedge fund positions. WestRock Company (NYSE:WRK) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately WRK wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); WRK investors were disappointed as the stock returned -47% during the same time period 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 most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.