Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don't make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Worthington Industries, Inc. (NYSE:WOR) to find out whether there were any major changes in hedge funds' views.
Is WOR a good stock to buy now? Hedge funds were selling. The number of bullish hedge fund positions decreased by 7 recently. Worthington Industries, Inc. (NYSE:WOR) was in 14 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 25. Our calculations also showed that WOR 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.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
AQR CAPITAL MANAGEMENT
Cliff Asness of AQR Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. With all of this in mind let's check out the recent hedge fund action surrounding Worthington Industries, Inc. (NYSE:WOR).
Do Hedge Funds Think WOR Is A Good Stock To Buy Now?
At the end of the third quarter, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -33% from the second quarter of 2020. On the other hand, there were a total of 24 hedge funds with a bullish position in WOR a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Worthington Industries, Inc. (NYSE:WOR) was held by Royce & Associates, which reported holding $17.7 million worth of stock at the end of September. It was followed by Southeastern Asset Management with a $4.8 million position. Other investors bullish on the company included Sandbar Asset Management, AQR Capital Management, and Fisher Asset Management. In terms of the portfolio weights assigned to each position Sandbar Asset Management allocated the biggest weight to Worthington Industries, Inc. (NYSE:WOR), around 0.76% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, earmarking 0.19 percent of its 13F equity portfolio to WOR.
Because Worthington Industries, Inc. (NYSE:WOR) has faced falling interest from the smart money, it's safe to say that there was a specific group of money managers who were dropping their entire stakes by the end of the third quarter. At the top of the heap, Seth Rosen's Nitorum Capital dumped the biggest position of the "upper crust" of funds followed by Insider Monkey, comprising an estimated $9 million in stock. Jack Ripsteen's fund, Potrero Capital Research, also cut its stock, about $4.7 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 7 funds by the end of the third quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Worthington Industries, Inc. (NYSE:WOR) but similarly valued. These stocks are Forma Therapeutics Holdings, Inc. (NASDAQ:FMTX), Weingarten Realty Investors (NYSE:WRI), Kirby Corporation (NYSE:KEX), Alcoa Corporation (NYSE:AA), Utz Brands Inc (NYSE:UTZ), Harmony Biosciences Holdings, Inc. (NASDAQ:HRMY), and Federated Hermes, Inc. (NYSE:FHI). This group of stocks' market valuations are similar to WOR's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FMTX,10,926511,-1 WRI,14,121078,-5 KEX,34,423901,14 AA,33,415610,0 UTZ,15,166197,-4 HRMY,10,214625,10 FHI,29,167641,-1 Average,20.7,347938,1.9 [/table]
As you can see these stocks had an average of 20.7 hedge funds with bullish positions and the average amount invested in these stocks was $348 million. That figure was $39 million in WOR's case. Kirby Corporation (NYSE:KEX) is the most popular stock in this table. On the other hand Forma Therapeutics Holdings, Inc. (NASDAQ:FMTX) is the least popular one with only 10 bullish hedge fund positions. Worthington Industries, Inc. (NYSE:WOR) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for WOR is 23.1. 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 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on WOR as the stock returned 31.6% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
