Hedge Funds Have Never Been This Bullish On Genesee & Wyoming Inc (GWR)

Hedge funds are not perfect. They have their bad picks just like everyone else. Facebook, a stock hedge funds have loved dearly, lost nearly 40% of its value at one point in 2018. Although hedge funds are not perfect, their consensus picks do deliver solid returns, however. Our data show the top 20 S&P 500 stocks among hedge funds beat the S&P 500 Index by nearly 10 percentage points so far in 2019. Because hedge funds have a lot of resources and their consensus picks do well, we pay attention to what they think. In this article, we analyze what the elite funds think of Genesee & Wyoming Inc (NYSE:GWR).

Is Genesee & Wyoming Inc (NYSE:GWR) undervalued? Hedge funds are betting on the stock. The number of bullish hedge fund bets improved by 5 in recent months. Our calculations also showed that GWR isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). GWR was in 31 hedge funds' portfolios at the end of September. There were 26 hedge funds in our database with GWR positions at the end of the previous quarter.

Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_30570" align="aligncenter" width="478"]

James Dinan of York Capital Management[/caption]

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's take a gander at the new hedge fund action encompassing Genesee & Wyoming Inc (NYSE:GWR).

How have hedgies been trading Genesee & Wyoming Inc (NYSE:GWR)?

At Q3's end, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 19% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards GWR over the last 17 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Millennium Management held the most valuable stake in Genesee & Wyoming Inc (NYSE:GWR), which was worth $132.7 million at the end of the third quarter. On the second spot was Alpine Associates which amassed $109.1 million worth of shares. York Capital Management, Blue Harbour Group, and Cardinal Capital 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 Halcyon Asset Management allocated the biggest weight to Genesee & Wyoming Inc (NYSE:GWR), around 7.36% of its portfolio. Sandell Asset Management is also relatively very bullish on the stock, designating 5.57 percent of its 13F equity portfolio to GWR.

Consequently, key money managers were leading the bulls' herd. Alpine Associates, managed by Robert Emil Zoellner, assembled the biggest position in Genesee & Wyoming Inc (NYSE:GWR). Alpine Associates had $109.1 million invested in the company at the end of the quarter. James Dinan's York Capital Management also made a $92.7 million investment in the stock during the quarter. The other funds with new positions in the stock are John Orrico's Water Island Capital, John Bader's Halcyon Asset Management, and John Thiessen's Vertex One Asset Management.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Genesee & Wyoming Inc (NYSE:GWR) but similarly valued. These stocks are Dr. Reddy's Laboratories Limited (NYSE:RDY), The Madison Square Garden Company (NYSE:MSG), Morningstar, Inc. (NASDAQ:MORN), and Encompass Health Corporation (NYSE:EHC). This group of stocks' market values are similar to GWR's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RDY,13,95340,2 MSG,45,1729215,-5 MORN,24,258250,4 EHC,22,423218,-1 Average,26,626506,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $627 million. That figure was $784 million in GWR's case. The Madison Square Garden Company (NYSE:MSG) is the most popular stock in this table. On the other hand Dr. Reddy's Laboratories Limited (NYSE:RDY) is the least popular one with only 13 bullish hedge fund positions. Genesee & Wyoming Inc (NYSE:GWR) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately GWR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on GWR were disappointed as the stock returned 0.9% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.

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

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