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Is WCN A Good Stock To Buy According To Hedge Funds?

Debasis Saha
·7 min read

In this article we are going to use hedge fund sentiment as a tool and determine whether Waste Connections, Inc. (NYSE:WCN) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is WCN a good stock to buy? Waste Connections, Inc. (NYSE:WCN) investors should be aware of a decrease in hedge fund sentiment recently. Waste Connections, Inc. (NYSE:WCN) was in 32 hedge funds' portfolios at the end of September. The all time high for this statistic is 39. Our calculations also showed that WCN isn't among the 30 most popular stocks among hedge funds (click for Q3 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.

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 S&P 500 ETFs by more than 66 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 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 stocks that are in our short portfolio.

TUDOR INVESTMENT CORP
TUDOR INVESTMENT CORP

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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. With all of this in mind we're going to take a look at the latest hedge fund action encompassing Waste Connections, Inc. (NYSE:WCN).

Do Hedge Funds Think WCN Is A Good Stock To Buy Now?

At Q3's end, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of -18% from the previous quarter. The graph below displays the number of hedge funds with bullish position in WCN over the last 21 quarters. With the smart money's capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

Is WCN A Good Stock To Buy?
Is WCN A Good Stock To Buy?

Among these funds, Renaissance Technologies held the most valuable stake in Waste Connections, Inc. (NYSE:WCN), which was worth $149.4 million at the end of the third quarter. On the second spot was Junto Capital Management which amassed $70.5 million worth of shares. Point State Capital, Echo Street Capital Management, and Skye Global Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Galibier Capital Management allocated the biggest weight to Waste Connections, Inc. (NYSE:WCN), around 8.08% of its 13F portfolio. Coe Capital Management is also relatively very bullish on the stock, designating 3.49 percent of its 13F equity portfolio to WCN.

Seeing as Waste Connections, Inc. (NYSE:WCN) has experienced bearish sentiment from the smart money, we can see that there lies a certain "tier" of hedge funds who sold off their entire stakes by the end of the third quarter. Interestingly, Phill Gross and Robert Atchinson's Adage Capital Management dumped the biggest position of the 750 funds tracked by Insider Monkey, worth close to $13.3 million in stock. Israel Englander's fund, Millennium Management, also dropped its stock, about $4.9 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest fell by 7 funds by the end of the third quarter.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Waste Connections, Inc. (NYSE:WCN) but similarly valued. We will take a look at Ball Corporation (NYSE:BLL), Otis Worldwide Corporation (NYSE:OTIS), Manulife Financial Corporation (NYSE:MFC), Willis Towers Watson Public Limited Company (NASDAQ:WLTW), Wipro Limited (NYSE:WIT), Motorola Solutions Inc (NYSE:MSI), and Marvell Technology Group Ltd. (NASDAQ:MRVL). This group of stocks' market valuations resemble WCN's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BLL,33,932801,-5 OTIS,53,2224926,-3 MFC,21,196746,2 WLTW,51,2617710,2 WIT,9,93034,2 MSI,29,873220,-7 MRVL,37,479168,-4 Average,33.3,1059658,-1.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.3 hedge funds with bullish positions and the average amount invested in these stocks was $1060 million. That figure was $545 million in WCN's case. Otis Worldwide Corporation (NYSE:OTIS) is the most popular stock in this table. On the other hand Wipro Limited (NYSE:WIT) is the least popular one with only 9 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 overall hedge fund sentiment score for WCN is 48.8. 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. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and surpassed the market again by 16.4 percentage points. Unfortunately WCN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); WCN investors were disappointed as the stock returned -2.5% since the end of September (through 12/18) 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 in 2020.

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

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