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Hedge Funds Have Never Been This Bullish On Wabtec Corporation (WAB)

Reymerlyn Martin
·6 min read

Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published this article and predicted that US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Wabtec Corporation (NYSE:WAB).

Wabtec Corporation (NYSE:WAB) was in 41 hedge funds' portfolios at the end of December. WAB has seen an increase in hedge fund sentiment lately. There were 36 hedge funds in our database with WAB positions at the end of the previous quarter. Our calculations also showed that WAB isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds
5 Most Popular Stocks Among Hedge Funds

Today there are many methods stock traders employ to value their holdings. A duo of the most useful methods are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the best picks of the top fund managers can outclass the S&P 500 by a very impressive amount (see the details here).

[caption id="attachment_338852" align="aligncenter" width="400"] Richard S. Pzena of Pzena Investment Management[/caption]

Richard Pzena - Pzena Investment Management
Richard Pzena - Pzena Investment Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Now let's take a glance at the fresh hedge fund action regarding Wabtec Corporation (NYSE:WAB).

How are hedge funds trading Wabtec Corporation (NYSE:WAB)?

At the end of the fourth quarter, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, a change of 14% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards WAB over the last 18 quarters. With hedgies' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

More specifically, Pzena Investment Management was the largest shareholder of Wabtec Corporation (NYSE:WAB), with a stake worth $508.5 million reported as of the end of September. Trailing Pzena Investment Management was Farallon Capital, which amassed a stake valued at $394.4 million. Eagle Capital Management, FPR Partners, and Gates Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position 3G Capital allocated the biggest weight to Wabtec Corporation (NYSE:WAB), around 14.15% of its 13F portfolio. Park Presidio Capital is also relatively very bullish on the stock, dishing out 9.31 percent of its 13F equity portfolio to WAB.

As aggregate interest increased, specific money managers were breaking ground themselves. Renaissance Technologies, founded by Jim Simons, established the biggest position in Wabtec Corporation (NYSE:WAB). Renaissance Technologies had $25.5 million invested in the company at the end of the quarter. Robert Pohly's Samlyn Capital also made a $20.7 million investment in the stock during the quarter. The following funds were also among the new WAB investors: Robert Bishop's Impala Asset Management, Philip Hilal's Clearfield Capital, and Sahm Adrangi's Kerrisdale Capital.

Let's now take a look at hedge fund activity in other stocks similar to Wabtec Corporation (NYSE:WAB). These stocks are Wynn Resorts, Limited (NASDAQ:WYNN), Campbell Soup Company (NYSE:CPB), Diamondback Energy Inc (NASDAQ:FANG), and Celanese Corporation (NYSE:CE). This group of stocks' market valuations resemble WAB's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WYNN,44,1066566,6 CPB,29,1025914,-5 FANG,44,712696,0 CE,31,924932,10 Average,37,932527,2.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 37 hedge funds with bullish positions and the average amount invested in these stocks was $933 million. That figure was $2014 million in WAB's case. Wynn Resorts, Limited (NASDAQ:WYNN) is the most popular stock in this table. On the other hand Campbell Soup Company (NYSE:CPB) is the least popular one with only 29 bullish hedge fund positions. Wabtec Corporation (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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th but beat the market by 1.9 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 -29.5% during the same time period 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.

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

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