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Is Williams-Sonoma, Inc. (WSM) A Good Stock To Buy ??

Nina Todic

Insider Monkey has processed numerous 13F filings of hedge funds and successful investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the first quarter. You can find write-ups about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves and analyze what the smart money thinks of Williams-Sonoma, Inc. (NYSE:WSM) based on that data.

Williams-Sonoma, Inc. (NYSE:WSM) shareholders have witnessed an increase in hedge fund interest recently. Our calculations also showed that wsm isn't among the 30 most popular stocks among hedge funds.

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 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.

[caption id="attachment_30621" align="aligncenter" width="487"] Cliff Asness of AQR Capital Management[/caption]

AQR CAPITAL MANAGEMENT

Let's view the recent hedge fund action surrounding Williams-Sonoma, Inc. (NYSE:WSM).

How are hedge funds trading Williams-Sonoma, Inc. (NYSE:WSM)?

At Q1's end, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 71% from the fourth quarter of 2018. On the other hand, there were a total of 22 hedge funds with a bullish position in WSM a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with WSM Positions

More specifically, AQR Capital Management was the largest shareholder of Williams-Sonoma, Inc. (NYSE:WSM), with a stake worth $93 million reported as of the end of March. Trailing AQR Capital Management was Select Equity Group, which amassed a stake valued at $91.7 million. Millennium Management, Arrowstreet Capital, and D E Shaw were also very fond of the stock, giving the stock large weights in their portfolios.

Consequently, some big names have jumped into Williams-Sonoma, Inc. (NYSE:WSM) headfirst. Millennium Management, managed by Israel Englander, created the biggest position in Williams-Sonoma, Inc. (NYSE:WSM). Millennium Management had $36.8 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital also made a $24.2 million investment in the stock during the quarter. The other funds with new positions in the stock are Jim Simons's Renaissance Technologies, David Harding's Winton Capital Management, and Paul Tudor Jones's Tudor Investment Corp.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Williams-Sonoma, Inc. (NYSE:WSM) but similarly valued. These stocks are Itau CorpBanca (NYSE:ITCB), Radian Group Inc (NYSE:RDN), Cyberark Software Ltd (NASDAQ:CYBR), and New Jersey Resources Corp (NYSE:NJR). This group of stocks' market values resemble WSM's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ITCB,1,4168,0 RDN,19,192857,-5 CYBR,28,435159,8 NJR,11,96141,-7 Average,14.75,182081,-1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $182 million. That figure was $371 million in WSM's case. Cyberark Software Ltd (NASDAQ:CYBR) is the most popular stock in this table. On the other hand Itau CorpBanca (NYSE:ITCB) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Williams-Sonoma, Inc. (NYSE:WSM) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately WSM wasn't nearly as popular as these 20 stocks and hedge funds that were betting on WSM were disappointed as the stock returned -7.6% during the same period 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 13 of these stocks already outperformed the market in Q2.

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

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