Hedge Funds Are Taking A Breather

Last year we predicted the arrival of the first US recession since 2009 and we told in advance 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 W.W. Grainger, Inc. (NYSE:GWW).

W.W. Grainger, Inc. (NYSE:GWW) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 30 hedge funds’ portfolios at the end of March. Our calculations also showed that GWW isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Enphase Energy Inc (NASDAQ:ENPH), Martin Marietta Materials, Inc. (NYSE:MLM), and West Pharmaceutical Services Inc. (NYSE:WST) to gather more data points.

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 S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Gabriel Plotkin Melvin Capital 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 EV 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 let’s take a gander at the recent hedge fund action encompassing W.W. Grainger, Inc. (NYSE:GWW).

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

At the end of March, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 26 hedge funds with a bullish position in GWW a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is GWW A Good Stock To Buy?

Is GWW A Good Stock To Buy?

Among these funds, AQR Capital Management held the most valuable stake in W.W. Grainger, Inc. (NYSE:GWW), which was worth $77.1 million at the end of the fourth quarter. On the second spot was Melvin Capital Management which amassed $68.9 million worth of shares. Renaissance Technologies, Millennium Management, and PEAK6 Capital 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 Te Ahumairangi Investment Management allocated the biggest weight to W.W. Grainger, Inc. (NYSE:GWW), around 2.06% of its 13F portfolio. Carlson Capital is also relatively very bullish on the stock, setting aside 0.48 percent of its 13F equity portfolio to GWW.

Since W.W. Grainger, Inc. (NYSE:GWW) has experienced falling interest from hedge fund managers, it’s easy to see that there lies a certain “tier” of hedgies that slashed their full holdings heading into Q2. Interestingly, James Parsons’s Junto Capital Management cut the largest position of the 750 funds watched by Insider Monkey, worth about $63.8 million in stock. Steve Cohen’s fund, Point72 Asset Management, also sold off its stock, about $11.9 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks similar to W.W. Grainger, Inc. (NYSE:GWW). We will take a look at Enphase Energy Inc (NASDAQ:ENPH), Martin Marietta Materials, Inc. (NYSE:MLM), West Pharmaceutical Services Inc. (NYSE:WST), Lyft, Inc. (NASDAQ:LYFT), Ameren Corporation (NYSE:AEE), Energy Transfer L.P. (NYSE:ET), and Qorvo Inc (NASDAQ:QRVO). This group of stocks’ market valuations are closest to GWW’s market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ENPH,49,803938,1 MLM,41,1951007,0 WST,26,419487,-8 LYFT,60,1954603,8 AEE,19,266021,0 ET,25,647725,0 QRVO,41,2329699,-10 Average,37.3,1196069,-1.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 37.3 hedge funds with bullish positions and the average amount invested in these stocks was $1196 million. That figure was $351 million in GWW’s case. Lyft, Inc. (NASDAQ:LYFT) is the most popular stock in this table. On the other hand Ameren Corporation (NYSE:AEE) is the least popular one with only 19 bullish hedge fund positions. W.W. Grainger, Inc. (NYSE:GWW) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for GWW is 48.4. 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. 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 22.8% in 2021 through July 2nd and beat the market by 6 percentage points. A small number of hedge funds were also right about betting on GWW, though not to the same extent, as the stock returned 11.8% since the end of Q1 (through July 2nd) and outperformed the market.

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

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