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Did Hedge Funds Make The Right Call On Waters Corporation (WAT) ?

Debasis Saha
·6 min read

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Waters Corporation (NYSE:WAT) and determine whether hedge funds skillfully traded this stock.

Waters Corporation (NYSE:WAT) investors should pay attention to a decrease in enthusiasm from smart money of late. Our calculations also showed that WAT isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

According to most traders, hedge funds are assumed to be unimportant, outdated investment vehicles of yesteryear. While there are more than 8000 funds trading at the moment, Our researchers look at the top tier of this group, around 850 funds. These investment experts control most of the hedge fund industry's total asset base, and by keeping track of their finest picks, Insider Monkey has come up with a few investment strategies that have historically outrun the market. Insider Monkey's flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

[caption id="attachment_30668" align="aligncenter" width="400"] Richard Chilton of Chilton Investment Company[/caption]

CHILTON INVESTMENT COMPANY
CHILTON INVESTMENT COMPANY

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like "the Starbucks of cannabis" to identify the next tenbagger. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Now we're going to take a peek at the recent hedge fund action encompassing Waters Corporation (NYSE:WAT).

How are hedge funds trading Waters Corporation (NYSE:WAT)?

At the end of the first quarter, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards WAT over the last 18 quarters. With the smart money's sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Is WAT A Good Stock To Buy?
Is WAT A Good Stock To Buy?

Among these funds, Impax Asset Management held the most valuable stake in Waters Corporation (NYSE:WAT), which was worth $79.8 million at the end of the third quarter. On the second spot was Generation Investment Management which amassed $57.6 million worth of shares. GLG Partners, Select Equity Group, and D E Shaw 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 Impax Asset Management allocated the biggest weight to Waters Corporation (NYSE:WAT), around 1.06% of its 13F portfolio. PDT Partners is also relatively very bullish on the stock, designating 0.62 percent of its 13F equity portfolio to WAT.

Because Waters Corporation (NYSE:WAT) has witnessed falling interest from the entirety of the hedge funds we track, it's easy to see that there lies a certain "tier" of fund managers who sold off their entire stakes in the first quarter. It's worth mentioning that Israel Englander's Millennium Management dropped the biggest stake of the "upper crust" of funds watched by Insider Monkey, comprising about $5.4 million in stock, and Donald Sussman's Paloma Partners was right behind this move, as the fund dropped about $3.9 million worth. These moves are interesting, as aggregate hedge fund interest fell by 2 funds in the first quarter.

Let's check out hedge fund activity in other stocks similar to Waters Corporation (NYSE:WAT). We will take a look at Teladoc Health, Inc (NYSE:TDOC), West Pharmaceutical Services Inc. (NYSE:WST), Yandex NV (NASDAQ:YNDX), and NortonLifeLock Inc. (NASDAQ:NLOK). All of these stocks' market caps resemble WAT's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TDOC,36,532644,13 WST,27,346802,-2 YNDX,35,770433,-3 NLOK,42,1352392,-4 Average,35,750568,1 [/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 $751 million. That figure was $337 million in WAT's case. NortonLifeLock Inc. (NASDAQ:NLOK) is the most popular stock in this table. On the other hand West Pharmaceutical Services Inc. (NYSE:WST) is the least popular one with only 27 bullish hedge fund positions. Compared to these stocks Waters Corporation (NYSE:WAT) is even less popular than WST. Hedge funds dodged a bullet by taking a bearish stance towards WAT. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but managed to beat the market by 15.5 percentage points. Unfortunately WAT wasn't nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); WAT investors were disappointed as the stock returned -0.9% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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

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