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Was The Smart Money Right About Weyerhaeuser Co. (WY)?

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Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that's why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can't match. So should one consider investing in Weyerhaeuser Co. (NYSE:WY)? The smart money sentiment can provide an answer to this question.

Weyerhaeuser Co. (NYSE:WY) was in 33 hedge funds' portfolios at the end of June. The all time high for this statistics is 37. WY has seen a decrease in hedge fund interest of late. There were 35 hedge funds in our database with WY holdings at the end of March. Our calculations also showed that WY isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 percentage points since March 2017 (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 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Martin Whitman Third Avenue Management Marty Whitman
Martin Whitman Third Avenue Management Marty Whitman

Martin Whitman of Third Avenue Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Last week, most investors overlooked a major development because of the presidential elections: Oregon became the first state to legalize psychedelic mushrooms which are shown to have promising results in treating depression, addiction, and PTSD in early stage academic studies. So, we are checking out this psychedelic drug stock idea right now. We go through lists like the 10 best high dividend stocks to buy to identify high dividend stocks with upside potential in this low interest rate environment. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now we're going to take a gander at the new hedge fund action encompassing Weyerhaeuser Co. (NYSE:WY).

Hedge fund activity in Weyerhaeuser Co. (NYSE:WY)

At Q2's end, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from one quarter earlier. On the other hand, there were a total of 28 hedge funds with a bullish position in WY a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

The largest stake in Weyerhaeuser Co. (NYSE:WY) was held by Citadel Investment Group, which reported holding $77.4 million worth of stock at the end of June. It was followed by Zimmer Partners with a $47.7 million position. Other investors bullish on the company included Point72 Asset Management, Third Avenue Management, and Echo Street Capital Management. In terms of the portfolio weights assigned to each position Third Avenue Management allocated the biggest weight to Weyerhaeuser Co. (NYSE:WY), around 5.45% of its 13F portfolio. Sandbar Asset Management is also relatively very bullish on the stock, earmarking 2.23 percent of its 13F equity portfolio to WY.

Since Weyerhaeuser Co. (NYSE:WY) has experienced declining sentiment from the entirety of the hedge funds we track, it's easy to see that there was a specific group of hedge funds who sold off their positions entirely heading into Q3. At the top of the heap, Ken Heebner's Capital Growth Management dumped the biggest stake of the 750 funds tracked by Insider Monkey, totaling about $3.4 million in stock. Mike Vranos's fund, Ellington, also said goodbye to its stock, about $1.1 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 2 funds heading into Q3.

Let's now take a look at hedge fund activity in other stocks similar to Weyerhaeuser Co. (NYSE:WY). We will take a look at CMS Energy Corporation (NYSE:CMS), West Pharmaceutical Services Inc. (NYSE:WST), Smith & Nephew plc (NYSE:SNN), China Unicom (Hong Kong) Limited (NYSE:CHU), CDW Corporation (NASDAQ:CDW), TransUnion (NYSE:TRU), and Northern Trust Corporation (NASDAQ:NTRS). 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 CMS,30,500702,2 WST,27,379097,0 SNN,12,90551,3 CHU,8,42706,2 CDW,40,1179993,4 TRU,47,1628502,3 NTRS,35,449745,8 Average,28.4,610185,3.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.4 hedge funds with bullish positions and the average amount invested in these stocks was $610 million. That figure was $401 million in WY's case. TransUnion (NYSE:TRU) is the most popular stock in this table. On the other hand China Unicom (Hong Kong) Limited (NYSE:CHU) is the least popular one with only 8 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 overall hedge fund sentiment score for WY is 61.8. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Hedge funds were also right about betting on WY as the stock returned 21.5% since the end of Q2 (through 10/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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