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Were Hedge Funds Right About Expeditors International of Washington (EXPD)?

Debasis Saha

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Expeditors International of Washington (NASDAQ:EXPD) and determine whether hedge funds had an edge regarding this stock.

Is Expeditors International of Washington (NASDAQ:EXPD) a buy right now? The best stock pickers were getting more optimistic. The number of bullish hedge fund positions increased by 4 lately. Our calculations also showed that EXPD isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). EXPD was in 31 hedge funds' portfolios at the end of the first quarter of 2020. There were 27 hedge funds in our database with EXPD positions at the end of the previous quarter. Video: Watch our video about the top 5 most popular hedge fund stocks.

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 monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_26397" align="aligncenter" width="400"] Ray Dalio of Bridgewater Associates[/caption]

BRIDGEWATER ASSOCIATES
BRIDGEWATER ASSOCIATES

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Keeping this in mind we're going to analyze the fresh hedge fund action encompassing Expeditors International of Washington (NASDAQ:EXPD).

How have hedgies been trading Expeditors International of Washington (NASDAQ:EXPD)?

At the end of the first quarter, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of 15% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards EXPD over the last 18 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is EXPD A Good Stock To Buy?
Is EXPD A Good Stock To Buy?

Among these funds, Select Equity Group held the most valuable stake in Expeditors International of Washington (NASDAQ:EXPD), which was worth $174.2 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $40 million worth of shares. Holocene Advisors, GLG Partners, and Tensile Capital 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 Tensile Capital allocated the biggest weight to Expeditors International of Washington (NASDAQ:EXPD), around 2.71% of its 13F portfolio. Select Equity Group is also relatively very bullish on the stock, setting aside 1.2 percent of its 13F equity portfolio to EXPD.

Consequently, some big names have been driving this bullishness. Holocene Advisors, managed by Brandon Haley, created the largest position in Expeditors International of Washington (NASDAQ:EXPD). Holocene Advisors had $21.9 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also made a $4.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Richard SchimeláandáLawrence Sapanski's Cinctive Capital Management, Andrew Weiss's Weiss Asset Management, and Greg Eisner's Engineers Gate Manager.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Expeditors International of Washington (NASDAQ:EXPD) but similarly valued. These stocks are SS&C Technologies Holdings, Inc. (NASDAQ:SSNC), Shinhan Financial Group Co., Ltd. (NYSE:SHG), Discover Financial Services (NYSE:DFS), and International Flavors & Fragrances Inc (NYSE:IFF). This group of stocks' market values are closest to EXPD's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SSNC,57,1732077,-2 SHG,5,8469,2 DFS,40,466951,1 IFF,28,163049,0 Average,32.5,592637,0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.5 hedge funds with bullish positions and the average amount invested in these stocks was $593 million. That figure was $346 million in EXPD's case. SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) is the most popular stock in this table. On the other hand Shinhan Financial Group Co., Ltd. (NYSE:SHG) is the least popular one with only 5 bullish hedge fund positions. Expeditors International of Washington (NASDAQ:EXPD) is not the least popular stock in this group but hedge fund interest is still below average. 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 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately EXPD wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); EXPD investors were disappointed as the stock returned 14.8% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 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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