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Is Weyerhaeuser Co. (WY) A Good Stock To Buy?

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Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Weyerhaeuser Co. (NYSE:WY).

Is WY a good stock to buy? The smart money was reducing their bets on the stock. The number of bullish hedge fund bets dropped by 2 in recent months. Weyerhaeuser Co. (NYSE:WY) was in 38 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 41. Our calculations also showed that WY isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 40 hedge funds in our database with WY positions at the end of the fourth quarter.

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 115 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 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.

Stuart Zimmer Zimmer Partners
Stuart Zimmer Zimmer Partners

Stuart Zimmer of Zimmer Partners

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. Now we're going to take a glance at the fresh hedge fund action regarding Weyerhaeuser Co. (NYSE:WY).

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

Heading into the second quarter of 2021, a total of 38 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from one quarter earlier. By comparison, 35 hedge funds held shares or bullish call options in WY a year ago. With the smart money's capital changing hands, there exists a few key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

Among these funds, Diamond Hill Capital held the most valuable stake in Weyerhaeuser Co. (NYSE:WY), which was worth $267.6 million at the end of the fourth quarter. On the second spot was Zimmer Partners which amassed $94.3 million worth of shares. Renaissance Technologies, D E Shaw, 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 0 allocated the biggest weight to Weyerhaeuser Co. (NYSE:WY), around 4.02% of its 13F portfolio. 0 is also relatively very bullish on the stock, dishing out 1.36 percent of its 13F equity portfolio to WY.

Seeing as Weyerhaeuser Co. (NYSE:WY) has experienced a decline in interest from the entirety of the hedge funds we track, it's easy to see that there was a specific group of hedgies who were dropping their entire stakes heading into Q2. Interestingly, Steve Cohen's Point72 Asset Management dropped the largest investment of all the hedgies followed by Insider Monkey, comprising an estimated $18.6 million in stock, and Michael Cowley's Sandbar Asset Management was right behind this move, as the fund said goodbye to about $14.9 million worth. These transactions are interesting, as total hedge fund interest fell by 2 funds heading into Q2.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Weyerhaeuser Co. (NYSE:WY) but similarly valued. We will take a look at SVB Financial Group (NASDAQ:SIVB), MPLX LP (NYSE:MPLX), CBRE Group, Inc. (NYSE:CBRE), Royalty Pharma Plc (NASDAQ:RPRX), Ecopetrol S.A. (NYSE:EC), Magna International Inc. (NYSE:MGA), and BioNTech SE (NASDAQ:BNTX). This group of stocks' market valuations are closest to WY's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SIVB,49,1213261,18 MPLX,8,136195,-5 CBRE,30,2600509,-1 RPRX,26,1835240,8 EC,8,98728,1 MGA,34,671764,-4 BNTX,18,172627,1 Average,24.7,961189,2.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.7 hedge funds with bullish positions and the average amount invested in these stocks was $961 million. That figure was $641 million in WY's case. SVB Financial Group (NASDAQ:SIVB) is the most popular stock in this table. On the other hand MPLX LP (NYSE:MPLX) is the least popular one with only 8 bullish hedge fund positions. Weyerhaeuser Co. (NYSE:WY) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for WY is 67.4. 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 WY wasn't nearly as popular as these 5 stocks and hedge funds that were betting on WY were disappointed as the stock returned -3.2% 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.