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Hedge Funds Aren’t Crazy About Williams Companies, Inc. (WMB) Anymore

Reymerlyn Martin
·6 min read

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Williams Companies, Inc. (NYSE:WMB).

Williams Companies, Inc. (NYSE:WMB) shareholders have witnessed a decrease in enthusiasm from smart money of late. Williams Companies, Inc. (NYSE:WMB) was in 41 hedge funds' portfolios at the end of June. The all time high for this statistics is 73. There were 47 hedge funds in our database with WMB holdings at the end of March. Our calculations also showed that WMB isn't among the 30 most popular stocks among hedge funds (click for Q2 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.

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 S&P 500 ETFs by more than 56 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 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.

Mason Hawkins of Southeastern Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the top 10 cloud computing stocks to pick high growth 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind we're going to take a gander at the latest hedge fund action surrounding Williams Companies, Inc. (NYSE:WMB).

What does smart money think about Williams Companies, Inc. (NYSE:WMB)?

At Q2's end, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from one quarter earlier. By comparison, 34 hedge funds held shares or bullish call options in WMB a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Mason Hawkins's Southeastern Asset Management has the most valuable position in Williams Companies, Inc. (NYSE:WMB), worth close to $183.1 million, corresponding to 4.6% of its total 13F portfolio. The second largest stake is held by Point State Capital, led by Zach Schreiber, holding a $62.6 million position; the fund has 1.9% of its 13F portfolio invested in the stock. Some other professional money managers that are bullish include John Murphy's Levin Easterly Partners, Brandon Haley's Holocene Advisors and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position Heronetta Management allocated the biggest weight to Williams Companies, Inc. (NYSE:WMB), around 6.28% of its 13F portfolio. Southeastern Asset Management is also relatively very bullish on the stock, designating 4.57 percent of its 13F equity portfolio to WMB.

Judging by the fact that Williams Companies, Inc. (NYSE:WMB) has faced bearish sentiment from hedge fund managers, we can see that there were a few hedgies that slashed their full holdings heading into Q3. At the top of the heap, Jonathan Kolatch's Redwood Capital Management cut the biggest stake of the 750 funds monitored by Insider Monkey, comprising close to $20.9 million in stock, and Howard Marks's Oaktree Capital Management was right behind this move, as the fund said goodbye to about $14.2 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 6 funds heading into Q3.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Williams Companies, Inc. (NYSE:WMB) but similarly valued. These stocks are Ecopetrol S.A. (NYSE:EC), Fortive Corporation (NYSE:FTV), China Telecom Corporation Limited (NYSE:CHA), Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA), Ball Corporation (NYSE:BLL), Kellogg Company (NYSE:K), and Incyte Corporation (NASDAQ:INCY). This group of stocks' market values resemble WMB's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EC,11,113508,-1 FTV,35,1372140,0 CHA,5,30145,0 BBVA,11,164405,3 BLL,38,767527,-3 K,33,418366,-4 INCY,29,4432332,-11 Average,23.1,1042632,-2.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.1 hedge funds with bullish positions and the average amount invested in these stocks was $1043 million. That figure was $467 million in WMB's case. Ball Corporation (NYSE:BLL) is the most popular stock in this table. On the other hand China Telecom Corporation Limited (NYSE:CHA) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Williams Companies, Inc. (NYSE:WMB) is more popular among hedge funds. Our overall hedge fund sentiment score for WMB is 65.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 30% in 2020 through October 23rd and still beat the market by 21 percentage points. Unfortunately WMB wasn't nearly as popular as these 10 stocks and hedge funds that were betting on WMB were disappointed as the stock returned 7% since the end of the second quarter (through 10/23) 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 in 2020.

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

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