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Is Westinghouse Air Brake Technologies Corporation (WAB) A Good Stock To Buy?

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  • WAB
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We at Insider Monkey have gone over 866 13F filings that hedge funds and prominent investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st. In this article, we look at what those funds think of Westinghouse Air Brake Technologies Corporation (NYSE:WAB) based on that data.

Is WAB a good stock to buy? Investors who are in the know were becoming less hopeful. The number of bullish hedge fund positions were cut by 5 lately. Westinghouse Air Brake Technologies Corporation (NYSE:WAB) was in 40 hedge funds' portfolios at the end of March. The all time high for this statistic is 45. Our calculations also showed that WAB isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 45 hedge funds in our database with WAB positions at the end of the fourth quarter.

In the eyes of most investors, hedge funds are assumed to be underperforming, old financial vehicles of years past. While there are over 8000 funds trading at the moment, Our researchers hone in on the leaders of this group, approximately 850 funds. These hedge fund managers manage the majority of the hedge fund industry's total asset base, and by keeping an eye on their top picks, Insider Monkey has formulated a few investment strategies that have historically outpaced Mr. Market. Insider Monkey's flagship short hedge fund strategy outrun the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

Richard Pzena - Pzena Investment Management
Richard Pzena - Pzena Investment Management

Richard S. Pzena of Pzena Investment Management

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 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind we're going to analyze the latest hedge fund action regarding Westinghouse Air Brake Technologies Corporation (NYSE:WAB).

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

At the end of March, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the fourth quarter of 2020. On the other hand, there were a total of 41 hedge funds with a bullish position in WAB a year ago. With the smart money's sentiment swirling, there exists a few key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Is WAB A Good Stock To Buy?
Is WAB A Good Stock To Buy?

The largest stake in Westinghouse Air Brake Technologies Corporation (NYSE:WAB) was held by Pzena Investment Management, which reported holding $650.8 million worth of stock at the end of December. It was followed by Farallon Capital with a $391.6 million position. Other investors bullish on the company included 3G Sahana Capital Management, First Pacific Advisors LLC, and XN Exponent Advisors. In terms of the portfolio weights assigned to each position 3G Sahana Capital Management allocated the biggest weight to Westinghouse Air Brake Technologies Corporation (NYSE:WAB), around 30.35% of its 13F portfolio. XN Exponent Advisors is also relatively very bullish on the stock, designating 11.83 percent of its 13F equity portfolio to WAB.

Due to the fact that Westinghouse Air Brake Technologies Corporation (NYSE:WAB) has experienced falling interest from the smart money, we can see that there were a few hedge funds who sold off their full holdings heading into Q2. Interestingly, D. E. Shaw's D E Shaw cut the largest investment of all the hedgies followed by Insider Monkey, worth about $129 million in stock, and Paul Marshall and Ian Wace's Marshall Wace LLP was right behind this move, as the fund sold off about $15 million worth. These transactions are important to note, as total hedge fund interest was cut by 5 funds heading into Q2.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Westinghouse Air Brake Technologies Corporation (NYSE:WAB) but similarly valued. We will take a look at China Southern Airlines Co Ltd (NYSE:ZNH), Solaredge Technologies Inc (NASDAQ:SEDG), Bio-Techne Corporation (NASDAQ:TECH), Liberty Global plc (NASDAQ:LBTYA), The Boston Beer Company Inc (NYSE:SAM), Devon Energy Corporation (NYSE:DVN), and Ares Management Corp (NYSE:ARES). This group of stocks' market caps are similar to WAB's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ZNH,3,15588,0 SEDG,32,420741,4 TECH,23,411800,-1 LBTYA,35,848078,-1 SAM,29,903673,-6 DVN,52,1466337,7 ARES,16,565174,-4 Average,27.1,661627,-0.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.1 hedge funds with bullish positions and the average amount invested in these stocks was $662 million. That figure was $2481 million in WAB's case. Devon Energy Corporation (NYSE:DVN) is the most popular stock in this table. On the other hand China Southern Airlines Co Ltd (NYSE:ZNH) is the least popular one with only 3 bullish hedge fund positions. Westinghouse Air Brake Technologies Corporation (NYSE:WAB) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for WAB is 64.4. 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. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 19.3% in 2021 through June 25th and beat the market again by 4.8 percentage points. Unfortunately WAB wasn't nearly as popular as these 5 stocks and hedge funds that were betting on WAB were disappointed as the stock returned 4.9% since the end of March (through 6/25) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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