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Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 57%. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 41.1% in 2019 (through December 23rd) and outperformed the broader market benchmark by 10.1 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Is Westinghouse Air Brake Technologies Corp (NYSE:WAB) ready to rally soon? The smart money is taking a bullish view. The number of bullish hedge fund positions advanced by 5 recently. Our calculations also showed that WAB isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). WAB was in 32 hedge funds' portfolios at the end of September. There were 27 hedge funds in our database with WAB positions at the end of the previous quarter.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now we're going to take a look at the key hedge fund action encompassing Westinghouse Air Brake Technologies Corp (NYSE:WAB).
How are hedge funds trading Westinghouse Air Brake Technologies Corp (NYSE:WAB)?
Heading into the fourth quarter of 2019, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 19% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in WAB over the last 17 quarters. With hedge funds' sentiment swirling, there exists a few key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
The largest stake in Westinghouse Air Brake Technologies Corp (NYSE:WAB) was held by Farallon Capital, which reported holding $450.6 million worth of stock at the end of September. It was followed by Pzena Investment Management with a $320.1 million position. Other investors bullish on the company included Eagle Capital Management, FPR Partners, and Gates Capital Management. In terms of the portfolio weights assigned to each position 3G Capital allocated the biggest weight to Westinghouse Air Brake Technologies Corp (NYSE:WAB), around 11.3% of its 13F portfolio. Park Presidio Capital is also relatively very bullish on the stock, designating 9.72 percent of its 13F equity portfolio to WAB.
Consequently, key hedge funds have been driving this bullishness. Manikay Partners, managed by Shane Finemore, established the largest position in Westinghouse Air Brake Technologies Corp (NYSE:WAB). Manikay Partners had $18 million invested in the company at the end of the quarter. Phill Gross and Robert Atchinson's Adage Capital Management also initiated a $13.8 million position during the quarter. The other funds with new positions in the stock are Michael A. Price and Amos Meron's Empyrean Capital Partners, Sara Nainzadeh's Centenus Global Management, and Perella Weinberg Partners.
Let's now take a look at hedge fund activity in other stocks similar to Westinghouse Air Brake Technologies Corp (NYSE:WAB). We will take a look at Hologic, Inc. (NASDAQ:HOLX), Sun Communities Inc (NYSE:SUI), Atmos Energy Corporation (NYSE:ATO), and Cna Financial Corporation (NYSE:CNA). This group of stocks' market caps are similar to WAB's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HOLX,33,1018180,1 SUI,15,303237,-5 ATO,19,407896,5 CNA,14,86638,2 Average,20.25,453988,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $454 million. That figure was $1647 million in WAB's case. Hologic, Inc. (NASDAQ:HOLX) is the most popular stock in this table. On the other hand Cna Financial Corporation (NYSE:CNA) is the least popular one with only 14 bullish hedge fund positions. Westinghouse Air Brake Technologies Corp (NYSE:WAB) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately WAB wasn't nearly as popular as these 20 stocks and hedge funds that were betting on WAB were disappointed as the stock returned 11.5% in 2019 (through December 23rd) 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 many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.