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Were Hedge Funds Right About Walmart Inc. (WMT)?

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Abigail Fisher
·5 min read
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In this article we are going to use hedge fund sentiment as a tool and determine whether Walmart Inc. (NYSE:WMT) 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.

Walmart Inc. (NYSE:WMT) was in 70 hedge funds' portfolios at the end of December. The all time high for this statistic is 71. WMT investors should be aware of an increase in activity from the world's largest hedge funds lately. There were 69 hedge funds in our database with WMT positions at the end of the third quarter. Our calculations also showed that WMT isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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' 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 124 percentage points since March 2017 (see the details here).

BRIDGEWATER ASSOCIATES
BRIDGEWATER ASSOCIATES

Ray Dalio of Bridgewater Associates

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. 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. Keeping this in mind let's view the fresh hedge fund action regarding Walmart Inc. (NYSE:WMT).

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

At the end of the fourth quarter, a total of 70 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 1% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in WMT over the last 22 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Fisher Asset Management held the most valuable stake in Walmart Inc. (NYSE:WMT), which was worth $1705.3 million at the end of the fourth quarter. On the second spot was Bill & Melinda Gates Foundation Trust which amassed $1672.6 million worth of shares. AQR Capital Management, Bridgewater Associates, and Millennium 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 Empirical Capital Partners allocated the biggest weight to Walmart Inc. (NYSE:WMT), around 12.62% of its 13F portfolio. Bill & Melinda Gates Foundation Trust is also relatively very bullish on the stock, setting aside 7.49 percent of its 13F equity portfolio to WMT.

There weren't any hedge funds initiating brand new positions in the stock during the fourth quarter.

Let's also examine hedge fund activity in other stocks similar to Walmart Inc. (NYSE:WMT). We will take a look at JPMorgan Chase & Co. (NYSE:JPM), Mastercard Incorporated (NYSE:MA), The Procter & Gamble Company (NYSE:PG), UnitedHealth Group Inc. (NYSE:UNH), The Walt Disney Company (NYSE:DIS), NVIDIA Corporation (NASDAQ:NVDA), and The Home Depot, Inc. (NYSE:HD). This group of stocks' market valuations match WMT's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position JPM,112,6967178,-6 MA,154,17978734,21 PG,83,10421985,8 UNH,91,10778450,2 DIS,144,16417240,32 NVDA,88,8692203,6 HD,79,4924208,6 Average,107.3,10882857,9.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 107.3 hedge funds with bullish positions and the average amount invested in these stocks was $10883 million. That figure was $6197 million in WMT's case. Mastercard Incorporated (NYSE:MA) is the most popular stock in this table. On the other hand The Home Depot, Inc. (NYSE:HD) is the least popular one with only 79 bullish hedge fund positions. Compared to these stocks Walmart Inc. (NYSE:WMT) is even less popular than HD. Our overall hedge fund sentiment score for WMT is 35.6. 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. Hedge funds dodged a bullet by taking a bearish stance towards WMT. Our calculations showed that the top 30 most popular hedge fund stocks returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th but managed to beat the market again by 0.9 percentage points. Unfortunately WMT wasn't nearly as popular as these 30 stocks (hedge fund sentiment was very bearish); WMT investors were disappointed as the stock returned -2.7% since the end of the fourth quarter (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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

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