We can judge whether Welbilt, Inc. (NYSE:WBT) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.
Welbilt, Inc. (NYSE:WBT) was in 26 hedge funds' portfolios at the end of September. WBT has experienced an increase in support from the world's most elite money managers in recent months. There were 25 hedge funds in our database with WBT holdings at the end of the previous quarter. Our calculations also showed that WBT 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.
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' 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_25910" align="aligncenter" width="467"] Carl Icahn of Icahn Capital[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to analyze the key hedge fund action encompassing Welbilt, Inc. (NYSE:WBT).
What does smart money think about Welbilt, Inc. (NYSE:WBT)?
At the end of the third quarter, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in WBT over the last 17 quarters. With hedgies' capital changing hands, there exists an "upper tier" of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Carl Icahn's Icahn Capital has the number one position in Welbilt, Inc. (NYSE:WBT), worth close to $170 million, accounting for 0.7% of its total 13F portfolio. The second most bullish fund manager is Ian Simm of Impax Asset Management, with a $158.8 million position; 2.1% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that are bullish include Jeffrey Gates's Gates Capital Management, Matt Sirovich and Jeremy Mindich's Scopia Capital and Robert Joseph Caruso's Select Equity Group. In terms of the portfolio weights assigned to each position Manor Road Capital Partners allocated the biggest weight to Welbilt, Inc. (NYSE:WBT), around 6.51% of its portfolio. Scopia Capital is also relatively very bullish on the stock, dishing out 6.47 percent of its 13F equity portfolio to WBT.
Consequently, some big names have jumped into Welbilt, Inc. (NYSE:WBT) headfirst. Driehaus Capital, managed by Richard Driehaus, created the most outsized position in Welbilt, Inc. (NYSE:WBT). Driehaus Capital had $2.6 million invested in the company at the end of the quarter. Anand Parekh's Alyeska Investment Group also made a $0.7 million investment in the stock during the quarter. The other funds with new positions in the stock are David Harding's Winton Capital Management, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, and Donald Sussman's Paloma Partners.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Welbilt, Inc. (NYSE:WBT) but similarly valued. We will take a look at Builders FirstSource, Inc. (NASDAQ:BLDR), AU Optronics Corp. (NYSE:AUO), HB Fuller Company (NYSE:FUL), and The Simply Good Foods Company (NASDAQ:SMPL). All of these stocks' market caps are closest to WBT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BLDR,36,499407,1 AUO,8,20810,1 FUL,14,146701,2 SMPL,21,219922,-2 Average,19.75,221710,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $222 million. That figure was $793 million in WBT's case. Builders FirstSource, Inc. (NASDAQ:BLDR) is the most popular stock in this table. On the other hand AU Optronics Corp. (NYSE:AUO) is the least popular one with only 8 bullish hedge fund positions. Welbilt, Inc. (NYSE:WBT) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately WBT wasn't nearly as popular as these 20 stocks and hedge funds that were betting on WBT were disappointed as the stock returned -1% 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.