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We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31, so let’s proceed with the discussion of the hedge fund sentiment on Western Gas Partners, LP (NYSE:WES).
Is Western Gas Partners, LP (NYSE:WES) undervalued? The best stock pickers are in an optimistic mood. The number of long hedge fund positions improved by 2 in recent months. Our calculations also showed that WES isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). WES was in 13 hedge funds' portfolios at the end of December. There were 11 hedge funds in our database with WES holdings at the end of the previous quarter.
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 monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 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.
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James Dondero of Highland Capital Management[/caption]
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Keeping this in mind we're going to take a look at the fresh hedge fund action encompassing Western Gas Partners, LP (NYSE:WES).
What does smart money think about Western Gas Partners, LP (NYSE:WES)?
At the end of the fourth quarter, a total of 13 of the hedge funds tracked by Insider Monkey were long this stock, a change of 18% from the previous quarter. On the other hand, there were a total of 7 hedge funds with a bullish position in WES a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Zimmer Partners, managed by Stuart J. Zimmer, holds the most valuable position in Western Gas Partners, LP (NYSE:WES). Zimmer Partners has a $60.2 million position in the stock, comprising 0.8% of its 13F portfolio. Sitting at the No. 2 spot is Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $15.1 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining professional money managers that are bullish comprise Henry Breck's Heronetta Management, James Dondero's Highland Capital Management and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Heronetta Management allocated the biggest weight to Western Gas Partners, LP (NYSE:WES), around 3.17% of its 13F portfolio. Lucas Capital Management is also relatively very bullish on the stock, earmarking 1.79 percent of its 13F equity portfolio to WES.
As industrywide interest jumped, specific money managers were leading the bulls' herd. Intrinsic Edge Capital, managed by Mark Coe, assembled the biggest position in Western Gas Partners, LP (NYSE:WES). Intrinsic Edge Capital had $2 million invested in the company at the end of the quarter. Renaissance Technologies also made a $1.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Richard Driehaus's Driehaus Capital and David Andre and Astro Teller's Cerebellum Capital.
Let's check out hedge fund activity in other stocks similar to Western Gas Partners, LP (NYSE:WES). We will take a look at OGE Energy Corp. (NYSE:OGE), Kilroy Realty Corp (NYSE:KRC), Zions Bancorporation (NASDAQ:ZION), and Ralph Lauren Corporation (NYSE:RL). All of these stocks' market caps are similar to WES's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OGE,17,156625,0 KRC,18,182727,-8 ZION,43,597267,13 RL,37,988865,4 Average,28.75,481371,2.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.75 hedge funds with bullish positions and the average amount invested in these stocks was $481 million. That figure was $96 million in WES's case. Zions Bancorporation (NASDAQ:ZION) is the most popular stock in this table. On the other hand OGE Energy Corp. (NYSE:OGE) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Western Gas Partners, LP (NYSE:WES) is even less popular than OGE. Hedge funds dodged a bullet by taking a bearish stance towards WES. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but managed to beat the market by 3.2 percentage points. Unfortunately WES wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); WES investors were disappointed as the stock returned -73.3% 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 most of these stocks already outperformed the market so far in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.