"The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak," are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Waste Connections, Inc. (NYSE:WCN) and see how it was affected.
Waste Connections, Inc. (NYSE:WCN) shareholders have witnessed a decrease in activity from the world's largest hedge funds in recent months. WCN was in 26 hedge funds' portfolios at the end of March. There were 28 hedge funds in our database with WCN positions at the end of the previous quarter. Our calculations also showed that WCN isn't among the 30 most popular stocks among hedge funds.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 40 percentage points since May 2014 through May 30, 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.
We're going to take a glance at the latest hedge fund action encompassing Waste Connections, Inc. (NYSE:WCN).
How have hedgies been trading Waste Connections, Inc. (NYSE:WCN)?
At Q1's end, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from one quarter earlier. On the other hand, there were a total of 30 hedge funds with a bullish position in WCN a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Waste Connections, Inc. (NYSE:WCN), with a stake worth $206.4 million reported as of the end of March. Trailing Renaissance Technologies was Maverick Capital, which amassed a stake valued at $45 million. Osterweis Capital Management, Millennium Management, and GAMCO Investors were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Waste Connections, Inc. (NYSE:WCN) has experienced bearish sentiment from the aggregate hedge fund industry, it's easy to see that there was a specific group of hedgies that slashed their positions entirely in the third quarter. At the top of the heap, Matthew Tewksbury's Stevens Capital Management sold off the largest investment of the "upper crust" of funds watched by Insider Monkey, worth close to $2.4 million in stock. Mark Coe's fund, Coe Capital Management, also sold off its stock, about $2.3 million worth. These transactions are important to note, as total hedge fund interest fell by 2 funds in the third quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Waste Connections, Inc. (NYSE:WCN) but similarly valued. These stocks are Discover Financial Services (NYSE:DFS), Fiat Chrysler Automobiles NV (NYSE:FCAU), Sprint Corporation (NYSE:S), and Motorola Solutions Inc (NYSE:MSI). This group of stocks' market valuations are closest to WCN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DFS,36,742031,-1 FCAU,27,2246774,-7 S,24,618801,0 MSI,29,835065,6 Average,29,1110668,-0.5 [/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 $1111 million. That figure was $546 million in WCN's case. Discover Financial Services (NYSE:DFS) is the most popular stock in this table. On the other hand Sprint Corporation (NYSE:S) is the least popular one with only 24 bullish hedge fund positions. Waste Connections, Inc. (NYSE:WCN) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. A small number of hedge funds were also right about betting on WCN as the stock returned 6% during the same time frame and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.