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Hedge Funds Have Never Been This Bullish On Weyerhaeuser Co. (WY)

Reymerlyn Martin

Weyerhaeuser Co. (NYSE:WY) shareholders have witnessed an increase in hedge fund interest in recent months. WY was in 37 hedge funds' portfolios at the end of December. There were 35 hedge funds in our database with WY positions at the end of the previous quarter. Overall hedge fund sentiment towards WY is at an all time high. This is usually a very bullish signal. For example hedge fund sentiment in Xilinx Inc. (XLNX) was also at its all time high at the beginning of this year and the stock returned more than 46% in 2.5 months. We observed a similar performance from Progressive Corporation (PGR) which returned 27% and outperformed the SPY by nearly 14 percentage points in 2.5 months. Hedge fund sentiment towards IQVIA Holdings Inc. (IQV), Brookfield Asset Management Inc. (BAM), Atlassian Corporation Plc (TEAM), RCL, MTB and CRH hit all time highs at the end of December, and all of these stocks returned more than 20% in the first 2.5 months of this year.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 32 percentage points since May 2014 through March 12, 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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

Ken-Heebner

Let's analyze the new hedge fund action surrounding Weyerhaeuser Co. (NYSE:WY).

How are hedge funds trading Weyerhaeuser Co. (NYSE:WY)?

At Q4's end, a total of 37 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 6% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in WY over the last 14 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

WY_mar2019

The largest stake in Weyerhaeuser Co. (NYSE:WY) was held by Third Avenue Management, which reported holding $105.1 million worth of stock at the end of September. It was followed by D E Shaw with a $84.1 million position. Other investors bullish on the company included Renaissance Technologies, Citadel Investment Group, and Two Sigma Advisors.

Consequently, some big names were breaking ground themselves. Capital Growth Management, managed by Ken Heebner, established the biggest position in Weyerhaeuser Co. (NYSE:WY). Capital Growth Management had $23.6 million invested in the company at the end of the quarter. Greg Poole's Echo Street Capital Management also made a $12.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Daniel Lascano's Lomas Capital Management, Minhua Zhang's Weld Capital Management, and Brad Dunkley and Blair Levinsky's Waratah Capital Advisors.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Weyerhaeuser Co. (NYSE:WY) but similarly valued. These stocks are CenturyLink, Inc. (NYSE:CTL), CBS Corporation (NYSE:CBS), International Paper Company (NYSE:IP), and Smith & Nephew plc (NYSE:SNN). This group of stocks' market caps are similar to WY's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CTL,31,1252514,7 CBS,45,903498,0 IP,34,435169,6 SNN,11,368173,2 Average,30.25,739839,3.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.25 hedge funds with bullish positions and the average amount invested in these stocks was $740 million. That figure was $568 million in WY's case. CBS Corporation (NYSE:CBS) is the most popular stock in this table. On the other hand Smith & Nephew plc (NYSE:SNN) is the least popular one with only 11 bullish hedge fund positions. Weyerhaeuser Co. (NYSE:WY) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Hedge funds were also right about betting on WY, though not to the same extent, as the stock returned 18.3% and outperformed the market as well.

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

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