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In this article we are going to use hedge fund sentiment as a tool and determine whether Republic Services, Inc. (NYSE:RSG) 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.
Republic Services, Inc. (NYSE:RSG) has seen an increase in hedge fund interest recently. Republic Services, Inc. (NYSE:RSG) was in 37 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 35. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 32 hedge funds in our database with RSG positions at the end of the first quarter. Our calculations also showed that RSG 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 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.
Gavin Saitowitz of Prelude Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. Now we're going to take a look at the recent hedge fund action regarding Republic Services, Inc. (NYSE:RSG).
What does smart money think about Republic Services, Inc. (NYSE:RSG)?
At Q2's end, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 16% from one quarter earlier. By comparison, 24 hedge funds held shares or bullish call options in RSG a year ago. With hedge funds' capital changing hands, there exists a few noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Cliff Asness's AQR Capital Management has the largest position in Republic Services, Inc. (NYSE:RSG), worth close to $130.9 million, comprising 0.2% of its total 13F portfolio. Sitting at the No. 2 spot is Richard Chilton of Chilton Investment Company, with a $99.1 million position; the fund has 3.3% of its 13F portfolio invested in the stock. Other peers with similar optimism comprise Israel Englander's Millennium Management, Mario Gabelli's GAMCO Investors and Renaissance Technologies. In terms of the portfolio weights assigned to each position Chilton Investment Company allocated the biggest weight to Republic Services, Inc. (NYSE:RSG), around 3.27% of its 13F portfolio. Wallace Capital Management is also relatively very bullish on the stock, setting aside 1.8 percent of its 13F equity portfolio to RSG.
Consequently, key hedge funds have been driving this bullishness. Point72 Asset Management, managed by Steve Cohen, assembled the biggest position in Republic Services, Inc. (NYSE:RSG). Point72 Asset Management had $34.6 million invested in the company at the end of the quarter. Brandon Haley's Holocene Advisors also made a $3.6 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Tudor Jones's Tudor Investment Corp, Ran Pang's Quantamental Technologies, and Gavin Saitowitz and Cisco J. del Valle's Springbok Capital.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Republic Services, Inc. (NYSE:RSG) but similarly valued. These stocks are KKR & Co Inc. (NYSE:KKR), Datadog, Inc. (NASDAQ:DDOG), Hormel Foods Corporation (NYSE:HRL), PACCAR Inc (NASDAQ:PCAR), AFLAC Incorporated (NYSE:AFL), Suncor Energy Inc. (NYSE:SU), and Sirius XM Holdings Inc (NASDAQ:SIRI). This group of stocks' market valuations are similar to RSG's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KKR,45,3339623,-3 DDOG,57,2363237,13 HRL,27,440889,-1 PCAR,30,244385,-8 AFL,34,588093,2 SU,29,845050,-1 SIRI,42,1136784,6 Average,37.7,1279723,1.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 37.7 hedge funds with bullish positions and the average amount invested in these stocks was $1280 million. That figure was $822 million in RSG's case. Datadog, Inc. (NASDAQ:DDOG) is the most popular stock in this table. On the other hand Hormel Foods Corporation (NYSE:HRL) is the least popular one with only 27 bullish hedge fund positions. Republic Services, Inc. (NYSE:RSG) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for RSG is 56.7. 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 beat the market by 20.1 percentage points. A small number of hedge funds were also right about betting on RSG, though not to the same extent, as the stock returned 7.9% since the end of Q2 (through October 30th) and outperformed the market.
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Disclosure: None. This article was originally published at Insider Monkey.