At Insider Monkey, we pore over the filings of nearly 873 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of June 30th. In this article, we will use that wealth of knowledge to determine whether or not Williams-Sonoma, Inc. (NYSE:WSM) makes for a good investment right now.
Is Williams-Sonoma, Inc. (NYSE:WSM) undervalued? Prominent investors were taking an optimistic view. The number of bullish hedge fund positions inched up by 5 recently. Williams-Sonoma, Inc. (NYSE:WSM) was in 34 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic was previously 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 Q2 rankings). There were 29 hedge funds in our database with WSM holdings at the end of March.
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 S&P 500 ETFs by 79 percentage points since March 2017 (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.
Clint Carlson of Carlson Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech 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. With all of this in mind we're going to take a gander at the latest hedge fund action surrounding Williams-Sonoma, Inc. (NYSE:WSM).
Do Hedge Funds Think WSM Is A Good Stock To Buy Now?
At Q2's end, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from the previous quarter. The graph below displays the number of hedge funds with bullish position in WSM over the last 24 quarters. With hedgies' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
Among these funds, Select Equity Group held the most valuable stake in Williams-Sonoma, Inc. (NYSE:WSM), which was worth $291.8 million at the end of the second quarter. On the second spot was Arrowstreet Capital which amassed $73.3 million worth of shares. AQR Capital Management, Citadel Investment Group, and Renaissance Technologies 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 Calixto Global Investors allocated the biggest weight to Williams-Sonoma, Inc. (NYSE:WSM), around 10.32% of its 13F portfolio. ThornTree Capital Partners is also relatively very bullish on the stock, designating 4.78 percent of its 13F equity portfolio to WSM.
As industrywide interest jumped, key money managers have jumped into Williams-Sonoma, Inc. (NYSE:WSM) headfirst. Armistice Capital, managed by Steven Boyd, assembled the most valuable position in Williams-Sonoma, Inc. (NYSE:WSM). Armistice Capital had $41.1 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also made a $7.7 million investment in the stock during the quarter. The other funds with new positions in the stock are Qing Li's Sciencast Management, Alec Litowitz and Ross Laser's Magnetar Capital, and Greg Poole's Echo Street Capital Management.
Let's also examine hedge fund activity in other stocks similar to Williams-Sonoma, Inc. (NYSE:WSM). We will take a look at Weibo Corp (NASDAQ:WB), Lincoln National Corporation (NYSE:LNC), Penn National Gaming, Inc (NASDAQ:PENN), QuantumScape Corporation (NYSE:QS), Dropbox, Inc. (NASDAQ:DBX), Medical Properties Trust, Inc. (NYSE:MPW), and Lamb Weston Holdings, Inc. (NYSE:LW). This group of stocks' market valuations resemble WSM's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WB,14,128195,2 LNC,30,678736,-6 PENN,40,1039146,-2 QS,26,321285,-3 DBX,39,929444,8 MPW,19,266856,-4 LW,36,692976,-2 Average,29.1,579520,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.1 hedge funds with bullish positions and the average amount invested in these stocks was $580 million. That figure was $803 million in WSM's case. Penn National Gaming, Inc (NASDAQ:PENN) is the most popular stock in this table. On the other hand Weibo Corp (NASDAQ:WB) is the least popular one with only 14 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 78.5. 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 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 21.8% in 2021 through October 11th and still beat the market by 4.4 percentage points. Hedge funds were also right about betting on WSM as the stock returned 7.8% since the end of Q2 (through 10/11) 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.