U.S. Markets closed

Hedge Funds Have Never Been This Bullish On Waste Management, Inc. (WM)

Nina Todic

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 750 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 Waste Management, Inc. (NYSE:WM).

Waste Management, Inc. (NYSE:WM) shareholders have witnessed an increase in support from the world's most elite money managers in recent months. Our calculations also showed that WM isn't among the 30 most popular stocks among hedge funds.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_673876" align="aligncenter" width="473"] John Overdeck of Two Sigma Advisors[/caption]

John Overdeck of Two Sigma

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's analyze the fresh hedge fund action encompassing Waste Management, Inc. (NYSE:WM).

How are hedge funds trading Waste Management, Inc. (NYSE:WM)?

At the end of the third quarter, a total of 46 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 31% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in WM over the last 17 quarters. With hedge funds' sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

No of Hedge Funds with WM Positions

The largest stake in Waste Management, Inc. (NYSE:WM) was held by Bill & Melinda Gates Foundation Trust, which reported holding $2142.9 million worth of stock at the end of September. It was followed by AQR Capital Management with a $429 million position. Other investors bullish on the company included Senator Investment Group, Impax Asset Management, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Bill & Melinda Gates Foundation Trust allocated the biggest weight to Waste Management, Inc. (NYSE:WM), around 10.1% of its portfolio. Lunia Capital is also relatively very bullish on the stock, earmarking 4 percent of its 13F equity portfolio to WM.

Now, key money managers were breaking ground themselves. Stevens Capital Management, managed by Matthew Tewksbury, assembled the biggest position in Waste Management, Inc. (NYSE:WM). Stevens Capital Management had $9.5 million invested in the company at the end of the quarter. Michael Gelband's ExodusPoint Capital also made a $3.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Tudor Jones's Tudor Investment Corp, Alec Litowitz and Ross Laser's Magnetar Capital, and Benjamin A. Smith's Laurion Capital Management.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Waste Management, Inc. (NYSE:WM) but similarly valued. These stocks are American International Group Inc (NYSE:AIG), TC Energy Corporation (NYSE:TRP), Infosys Limited (NYSE:INFY), and Simon Property Group, Inc (NYSE:SPG). This group of stocks' market values are closest to WM's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AIG,49,2451222,8 TRP,18,272298,6 INFY,24,1437631,-1 SPG,25,698285,-1 Average,29,1214859,3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $1215 million. That figure was $3533 million in WM's case. American International Group Inc (NYSE:AIG) is the most popular stock in this table. On the other hand TC Energy Corporation (NYSE:TRP) is the least popular one with only 18 bullish hedge fund positions. Waste Management, Inc. (NYSE:WM) 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 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately WM wasn't nearly as popular as these 20 stocks and hedge funds that were betting on WM were disappointed as the stock returned -3.7% during the fourth quarter (through 11/22) 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.

Related Content