How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Woodward Inc (NASDAQ:WWD) and determine whether hedge funds had an edge regarding this stock.
Is Woodward Inc (NASDAQ:WWD) worth your attention right now? Investors who are in the know were taking a pessimistic view. The number of long hedge fund positions fell by 3 recently. Woodward Inc (NASDAQ:WWD) was in 21 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 28. Our calculations also showed that WWD 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). There were 24 hedge funds in our database with WWD positions at the end of the first quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Boykin Curry of Eagle Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this lithium company which could also benefit from the electric car adoption. 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. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Keeping this in mind we're going to take a peek at the key hedge fund action surrounding Woodward Inc (NASDAQ:WWD).
How are hedge funds trading Woodward Inc (NASDAQ:WWD)?
At second quarter's end, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from one quarter earlier. On the other hand, there were a total of 28 hedge funds with a bullish position in WWD a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Eagle Capital Management, managed by Boykin Curry, holds the most valuable position in Woodward Inc (NASDAQ:WWD). Eagle Capital Management has a $126.5 million position in the stock, comprising 0.5% of its 13F portfolio. Sitting at the No. 2 spot is Vinit Bodas of Deccan Value Advisors, with a $78.1 million position; 4% of its 13F portfolio is allocated to the company. Other members of the smart money that are bullish contain Anand Parekh's Alyeska Investment Group, Ken Griffin's Citadel Investment Group and Chuck Royce's Royce & Associates. In terms of the portfolio weights assigned to each position Deccan Value Advisors allocated the biggest weight to Woodward Inc (NASDAQ:WWD), around 4.03% of its 13F portfolio. TenCore Partners is also relatively very bullish on the stock, dishing out 2.69 percent of its 13F equity portfolio to WWD.
Because Woodward Inc (NASDAQ:WWD) has faced bearish sentiment from the entirety of the hedge funds we track, logic holds that there was a specific group of hedgies that decided to sell off their positions entirely last quarter. Intriguingly, Renaissance Technologies said goodbye to the biggest investment of the "upper crust" of funds followed by Insider Monkey, totaling about $8.4 million in stock. Steve Pigott's fund, Fort Baker Capital Management, also dropped its stock, about $5.6 million worth. These moves are interesting, as total hedge fund interest was cut by 3 funds last quarter.
Let's go over hedge fund activity in other stocks similar to Woodward Inc (NASDAQ:WWD). These stocks are Vir Biotechnology, Inc. (NASDAQ:VIR), Gerdau SA (NYSE:GGB), Shell Midstream Partners LP (NYSE:SHLX), American Campus Communities, Inc. (NYSE:ACC), 51job, Inc. (NASDAQ:JOBS), RH (NYSE:RH), and KT Corporation (NYSE:KT). This group of stocks' market values match WWD's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position VIR,7,14975,3 GGB,10,123213,-2 SHLX,6,20644,2 ACC,26,364588,10 JOBS,9,18146,0 RH,40,1040238,10 KT,12,166879,-3 Average,15.7,249812,2.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.7 hedge funds with bullish positions and the average amount invested in these stocks was $250 million. That figure was $384 million in WWD's case. RH (NYSE:RH) is the most popular stock in this table. On the other hand Shell Midstream Partners LP (NYSE:SHLX) is the least popular one with only 6 bullish hedge fund positions. Woodward Inc (NASDAQ:WWD) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for WWD is 46.6. 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. 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 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 24.8% in 2020 through the end of September and beat the market by 19.3 percentage points. Unfortunately WWD wasn't nearly as popular as these 10 stocks and hedge funds that were betting on WWD were disappointed as the stock returned 3.5% in Q3 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 many of these stocks already outperformed the market so far this year.
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Disclosure: None. This article was originally published at Insider Monkey.