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Is WSM A Good Stock To Buy According To Hedge Funds?

Abigail Fisher
·6 min read

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Williams-Sonoma, Inc. (NYSE:WSM).

Is WSM a good stock to buy? Investors who are in the know were becoming hopeful. The number of bullish hedge fund positions increased by 4 lately. Williams-Sonoma, Inc. (NYSE:WSM) was in 31 hedge funds' portfolios at the end of September. The all time high for this statistic is 31. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that WSM isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.

To most shareholders, hedge funds are viewed as slow, old investment tools of yesteryear. While there are greater than 8000 funds in operation at the moment, Our researchers choose to focus on the leaders of this club, approximately 850 funds. These money managers shepherd most of all hedge funds' total capital, and by monitoring their top stock picks, Insider Monkey has unsheathed a number of investment strategies that have historically surpassed Mr. Market. Insider Monkey's flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .

Minhua Zhang of Weld Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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 we're going to take a glance at the recent hedge fund action regarding Williams-Sonoma, Inc. (NYSE:WSM).

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

At the end of September, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in WSM over the last 21 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Select Equity Group, managed by Robert Joseph Caruso, holds the largest position in Williams-Sonoma, Inc. (NYSE:WSM). Select Equity Group has a $158.3 million position in the stock, comprising 0.8% of its 13F portfolio. Coming in second is Cliff Asness of AQR Capital Management, with a $69.5 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other members of the smart money that are bullish comprise Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Clint Carlson's Carlson Capital and Steven Boyd's Armistice Capital. In terms of the portfolio weights assigned to each position Armistice Capital allocated the biggest weight to Williams-Sonoma, Inc. (NYSE:WSM), around 1.46% of its 13F portfolio. Carlson Capital is also relatively very bullish on the stock, setting aside 1.29 percent of its 13F equity portfolio to WSM.

As aggregate interest increased, key money managers were breaking ground themselves. Armistice Capital, managed by Steven Boyd, created the most valuable position in Williams-Sonoma, Inc. (NYSE:WSM). Armistice Capital had $40.2 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also made a $20.2 million investment in the stock during the quarter. The following funds were also among the new WSM investors: John Brennan's Sirios Capital Management, Ian Simm's Impax Asset Management, and Minhua Zhang's Weld Capital Management.

Let's check out hedge fund activity in other stocks similar to Williams-Sonoma, Inc. (NYSE:WSM). We will take a look at Penumbra Inc (NYSE:PEN), First Solar, Inc. (NASDAQ:FSLR), Vereit Inc (NYSE:VER), Cree, Inc. (NASDAQ:CREE), AMERCO (NASDAQ:UHAL), IAA, Inc. (NYSE:IAA), and Store Capital Corporation (NYSE:STOR). This group of stocks' market valuations are similar to WSM's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PEN,23,286645,3 FSLR,40,283671,24 VER,18,543958,-5 CREE,30,650447,13 UHAL,19,437403,-1 IAA,36,1299677,-7 STOR,20,763350,4 Average,26.6,609307,4.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.6 hedge funds with bullish positions and the average amount invested in these stocks was $609 million. That figure was $455 million in WSM's case. First Solar, Inc. (NASDAQ:FSLR) is the most popular stock in this table. On the other hand Vereit Inc (NYSE:VER) is the least popular one with only 18 bullish hedge fund positions. Williams-Sonoma, Inc. (NYSE:WSM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for WSM is 68.5. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 33.3% in 2020 through December 18th and still beat the market by 16.4 percentage points. Hedge funds were also right about betting on WSM as the stock returned 21.9% since the end of Q3 (through 12/18) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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