The first quarter was a breeze as Powell pivoted, and China seemed eager to reach a deal with Trump. Both the S&P 500 and Russell 2000 delivered very strong gains as a result, with the Russell 2000, which is composed of smaller companies, outperforming the large-cap stocks slightly during the first quarter. Unfortunately sentiment shifted in May as this time China pivoted and Trump put more pressure on China by increasing tariffs. Hedge funds' top 20 stock picks performed spectacularly in this volatile environment. These stocks delivered a total gain of 18.7% through May 30th, vs. a gain of 12.1% for the S&P 500 ETF. In this article we will look at how this market volatility affected the sentiment of hedge funds towards Weis Markets, Inc. (NYSE:WMK), and what that likely means for the prospects of the company and its stock.
Is Weis Markets, Inc. (NYSE:WMK) the right pick for your portfolio? Hedge funds are reducing their bets on the stock. The number of long hedge fund positions were cut by 2 lately. Our calculations also showed that WMK isn't among the 30 most popular stocks among hedge funds.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Let's take a look at the key hedge fund action encompassing Weis Markets, Inc. (NYSE:WMK).
How are hedge funds trading Weis Markets, Inc. (NYSE:WMK)?
At the end of the first quarter, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -12% from one quarter earlier. By comparison, 13 hedge funds held shares or bullish call options in WMK a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Royce & Associates, managed by Chuck Royce, holds the biggest position in Weis Markets, Inc. (NYSE:WMK). Royce & Associates has a $54.2 million position in the stock, comprising 0.5% of its 13F portfolio. Coming in second is Arrowstreet Capital, led by Peter Rathjens, Bruce Clarke and John Campbell, holding a $11.5 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors with similar optimism encompass Jim Simons's Renaissance Technologies, Cliff Asness's AQR Capital Management and Mario Gabelli's GAMCO Investors.
Because Weis Markets, Inc. (NYSE:WMK) has faced bearish sentiment from hedge fund managers, it's safe to say that there lies a certain "tier" of funds that elected to cut their positions entirely heading into Q3. It's worth mentioning that Joel Greenblatt's Gotham Asset Management dropped the biggest stake of the 700 funds watched by Insider Monkey, valued at about $1.1 million in stock, and John Overdeck and David Siegel's Two Sigma Advisors was right behind this move, as the fund sold off about $0.6 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest fell by 2 funds heading into Q3.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Weis Markets, Inc. (NYSE:WMK) but similarly valued. We will take a look at United Fire Group, Inc. (NASDAQ:UFCS), Frontline Ltd (NYSE:FRO), Easterly Government Properties Inc (NYSE:DEA), and Enterprise Financial Services Corp (NASDAQ:EFSC). This group of stocks' market valuations are closest to WMK's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position UFCS,10,14894,-1 FRO,10,32390,4 DEA,6,78261,1 EFSC,15,52852,0 Average,10.25,44599,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $45 million. That figure was $83 million in WMK's case. Enterprise Financial Services Corp (NASDAQ:EFSC) is the most popular stock in this table. On the other hand Easterly Government Properties Inc (NYSE:DEA) is the least popular one with only 6 bullish hedge fund positions. Weis Markets, Inc. (NYSE:WMK) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately WMK wasn't nearly as popular as these 20 stocks and hedge funds that were betting on WMK were disappointed as the stock returned -8.7% during the same period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.