Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before last year's Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Weyerhaeuser Company (NYSE:WY) changed recently.
Weyerhaeuser Company (NYSE:WY) shares haven't seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 28 hedge funds' portfolios at the end of the third quarter of 2019. At the end of this article we will also compare WY to other stocks including Synopsys, Inc. (NASDAQ:SNPS), Spotify Technology S.A. (NYSE:SPOT), and Fresenius Medical Care AG & Co. (NYSE:FMS) to get a better sense of its popularity.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_758450" align="aligncenter" width="450"] Martin Whitman of Third Avenue Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example 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. 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 is still extremely cheap despite already gaining 20 percent. With all of this in mind we're going to analyze the recent hedge fund action encompassing Weyerhaeuser Company (NYSE:WY).
Hedge fund activity in Weyerhaeuser Company (NYSE:WY)
At Q3's end, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in WY over the last 17 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Weyerhaeuser Company (NYSE:WY) was held by Third Avenue Management, which reported holding $88.6 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $86.6 million position. Other investors bullish on the company included Renaissance Technologies, Samlyn Capital, and Adage Capital Management. In terms of the portfolio weights assigned to each position Third Avenue Management allocated the biggest weight to Weyerhaeuser Company (NYSE:WY), around 8% of its 13F portfolio. Bourgeon Capital is also relatively very bullish on the stock, dishing out 3.27 percent of its 13F equity portfolio to WY.
Seeing as Weyerhaeuser Company (NYSE:WY) has experienced a decline in interest from the aggregate hedge fund industry, it's safe to say that there lies a certain "tier" of fund managers that slashed their full holdings last quarter. Interestingly, David E. Shaw's D E Shaw cut the biggest position of all the hedgies followed by Insider Monkey, worth about $18.6 million in stock, and Greg Poole's Echo Street Capital Management was right behind this move, as the fund said goodbye to about $11.1 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Weyerhaeuser Company (NYSE:WY) but similarly valued. We will take a look at Synopsys, Inc. (NASDAQ:SNPS), Spotify Technology S.A. (NYSE:SPOT), Fresenius Medical Care AG & Co. KGaA (NYSE:FMS), and Ameren Corporation (NYSE:AEE). This group of stocks' market caps resemble WY's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SNPS,40,1362195,-2 SPOT,37,1470342,-5 FMS,5,3764,-4 AEE,30,1557458,12 Average,28,1098440,0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $1098 million. That figure was $452 million in WY's case. Synopsys, Inc. (NASDAQ:SNPS) is the most popular stock in this table. On the other hand Fresenius Medical Care AG & Co. KGaA (NYSE:FMS) is the least popular one with only 5 bullish hedge fund positions. Weyerhaeuser Company (NYSE:WY) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on WY as the stock returned 45.3% in 2019 through December 23rd and outperformed the market by an even larger margin. 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.