Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That's why we weren't surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
Hedge fund interest in WesBanco, Inc. (NASDAQ:WSBC) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Casella Waste Systems Inc. (NASDAQ:CWST), Amicus Therapeutics, Inc. (NASDAQ:FOLD), and WESCO International, Inc. (NYSE:WCC) to gather more data points. Our calculations also showed that WSBC isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_735636" align="aligncenter" width="473"] Matthew Lindenbaum of Basswood Capital[/caption]
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. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds' buy/sell signals. We're going to check out the key hedge fund action regarding WesBanco, Inc. (NASDAQ:WSBC).
How are hedge funds trading WesBanco, Inc. (NASDAQ:WSBC)?
Heading into the fourth quarter of 2019, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in WSBC over the last 17 quarters. With hedge funds' capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
The largest stake in WesBanco, Inc. (NASDAQ:WSBC) was held by Renaissance Technologies, which reported holding $32 million worth of stock at the end of September. It was followed by Marshall Wace with a $7.2 million position. Other investors bullish on the company included Basswood Capital, Millennium Management, and Arrowstreet Capital. In terms of the portfolio weights assigned to each position Basswood Capital allocated the biggest weight to WesBanco, Inc. (NASDAQ:WSBC), around 0.42% of its 13F portfolio. Marshall Wace is also relatively very bullish on the stock, earmarking 0.06 percent of its 13F equity portfolio to WSBC.
Because WesBanco, Inc. (NASDAQ:WSBC) has witnessed declining sentiment from hedge fund managers, it's safe to say that there exists a select few fund managers that slashed their entire stakes by the end of the third quarter. Interestingly, Thomas Bailard's Bailard Inc sold off the largest position of all the hedgies followed by Insider Monkey, worth an estimated $0.4 million in stock. Paul Tudor Jones's fund, Tudor Investment Corp, also dumped its stock, about $0.3 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as WesBanco, Inc. (NASDAQ:WSBC) but similarly valued. These stocks are Casella Waste Systems Inc. (NASDAQ:CWST), Amicus Therapeutics, Inc. (NASDAQ:FOLD), WESCO International, Inc. (NYSE:WCC), and Workiva Inc (NYSE:WK). This group of stocks' market valuations resemble WSBC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CWST,12,166863,0 FOLD,26,690584,-3 WCC,18,446217,0 WK,19,172864,-1 Average,18.75,369132,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.75 hedge funds with bullish positions and the average amount invested in these stocks was $369 million. That figure was $54 million in WSBC's case. Amicus Therapeutics, Inc. (NASDAQ:FOLD) is the most popular stock in this table. On the other hand Casella Waste Systems Inc. (NASDAQ:CWST) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks WesBanco, Inc. (NASDAQ:WSBC) is even less popular than CWST. Hedge funds dodged a bullet by taking a bearish stance towards WSBC. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately WSBC wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); WSBC investors were disappointed as the stock returned -2.4% during the fourth quarter (through the end of November) 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 70 percent of these stocks already outperformed the market so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.