Does Advanced Disposal Services, Inc. (NYSE:ADSW) represent a good buying opportunity at the moment? Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.
Advanced Disposal Services, Inc. (NYSE:ADSW) investors should be aware of an increase in enthusiasm from smart money of late. Our calculations also showed that ADSW isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a peek at the recent hedge fund action encompassing Advanced Disposal Services, Inc. (NYSE:ADSW).
What does smart money think about Advanced Disposal Services, Inc. (NYSE:ADSW)?
At Q2's end, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 117% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ADSW over the last 16 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).
More specifically, Magnetar Capital was the largest shareholder of Advanced Disposal Services, Inc. (NYSE:ADSW), with a stake worth $119.5 million reported as of the end of March. Trailing Magnetar Capital was Alpine Associates, which amassed a stake valued at $79.5 million. Pentwater Capital Management, Millennium Management, and Water Island Capital were also very fond of the stock, giving the stock large weights in their portfolios.
As industrywide interest jumped, some big names have been driving this bullishness. Magnetar Capital, managed by Alec Litowitz and Ross Laser, created the biggest position in Advanced Disposal Services, Inc. (NYSE:ADSW). Magnetar Capital had $119.5 million invested in the company at the end of the quarter. Robert Emil Zoellner's Alpine Associates also made a $79.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Matthew Halbower's Pentwater Capital Management, John Orrico's Water Island Capital, and Clint Carlson's Carlson Capital.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Advanced Disposal Services, Inc. (NYSE:ADSW) but similarly valued. We will take a look at Dorman Products Inc. (NASDAQ:DORM), Reata Pharmaceuticals, Inc. (NASDAQ:RETA), American Eagle Outfitters Inc. (NYSE:AEO), and Domtar Corporation (NYSE:UFS). This group of stocks' market caps resemble ADSW's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DORM,14,65216,-1 RETA,15,287383,-3 AEO,21,348672,-4 UFS,18,139587,-1 Average,17,210215,-2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $210 million. That figure was $559 million in ADSW's case. American Eagle Outfitters Inc. (NYSE:AEO) is the most popular stock in this table. On the other hand Dorman Products Inc. (NASDAQ:DORM) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Advanced Disposal Services, Inc. (NYSE:ADSW) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on ADSW, though not to the same extent, as the stock returned 2.1% during the third quarter and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.