Is WestRock Company (NYSE:WRK) a good equity to bet on right now? We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
WestRock Company (NYSE:WRK) was in 26 hedge funds' portfolios at the end of the second quarter of 2019. WRK has experienced an increase in hedge fund sentiment of late. There were 23 hedge funds in our database with WRK positions at the end of the previous quarter. Our calculations also showed that WRK isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's view the fresh hedge fund action encompassing WestRock Company (NYSE:WRK).
How have hedgies been trading WestRock Company (NYSE:WRK)?
At Q2's end, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the previous quarter. By comparison, 23 hedge funds held shares or bullish call options in WRK a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
The largest stake in WestRock Company (NYSE:WRK) was held by Impax Asset Management, which reported holding $106.9 million worth of stock at the end of March. It was followed by Lakewood Capital Management with a $89.7 million position. Other investors bullish on the company included Millennium Management, D E Shaw, and Citadel Investment Group.
As industrywide interest jumped, some big names have jumped into WestRock Company (NYSE:WRK) headfirst. Millennium Management, managed by Israel Englander, created the largest call position in WestRock Company (NYSE:WRK). Millennium Management had $3.6 million invested in the company at the end of the quarter. Sara Nainzadeh's Centenus Global Management also initiated a $3.5 million position during the quarter. The other funds with new positions in the stock are Michael Kharitonov and Jon David McAuliffe's Voleon Capital, Gavin Saitowitz and Cisco J. del Valle's Springbok Capital, and Ray Dalio's Bridgewater Associates.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as WestRock Company (NYSE:WRK) but similarly valued. These stocks are 58.com Inc (NYSE:WUBA), Huntington Ingalls Industries Inc (NYSE:HII), Federal Realty Investment Trust (NYSE:FRT), and The Mosaic Company (NYSE:MOS). All of these stocks' market caps match WRK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WUBA,22,434944,-2 HII,23,668970,-8 FRT,23,222584,6 MOS,28,973892,-1 Average,24,575098,-1.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $575 million. That figure was $429 million in WRK's case. The Mosaic Company (NYSE:MOS) is the most popular stock in this table. On the other hand 58.com Inc (NYSE:WUBA) is the least popular one with only 22 bullish hedge fund positions. WestRock Company (NYSE:WRK) 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately WRK wasn't nearly as popular as these 20 stocks and hedge funds that were betting on WRK were disappointed as the stock returned 1.3% during the third 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 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.