Wells Fargo & Company (WFC): Are Hedge Funds Right About This Stock?

Debasis Saha
·5 min read

Is Wells Fargo & Company (NYSE:WFC) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Wells Fargo & Company (NYSE:WFC) investors should be aware of an increase in hedge fund interest in recent months. Wells Fargo & Company (NYSE:WFC) was in 99 hedge funds' portfolios at the end of December. The all time high for this statistic is 104. Our calculations also showed that WFC ranked #23 among the 30 most popular stocks among hedge funds (click for Q4 rankings).

At the moment there are a large number of gauges investors use to grade publicly traded companies. A duo of the best gauges are hedge fund and insider trading moves. We have shown that, historically, those who follow the top picks of the elite investment managers can trounce the broader indices by a superb margin (see the details here).

Boykin Curry EAGLE CAPITAL MANAGEMENT
Boykin Curry EAGLE CAPITAL MANAGEMENT

Boykin Curry of Eagle Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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 take a gander at the recent hedge fund action surrounding Wells Fargo & Company (NYSE:WFC).

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

At the end of December, a total of 99 of the hedge funds tracked by Insider Monkey were long this stock, a change of 10% from the third quarter of 2020. By comparison, 79 hedge funds held shares or bullish call options in WFC a year ago. With the smart money's capital changing hands, there exists a select group of notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Is WFC A Good Stock To Buy?
Is WFC A Good Stock To Buy?

More specifically, Berkshire Hathaway was the largest shareholder of Wells Fargo & Company (NYSE:WFC), with a stake worth $1582.2 million reported as of the end of December. Trailing Berkshire Hathaway was Eagle Capital Management, which amassed a stake valued at $1385.6 million. D E Shaw, Pzena Investment Management, and Theleme Partners 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 Magnolia Capital Fund allocated the biggest weight to Wells Fargo & Company (NYSE:WFC), around 21.85% of its 13F portfolio. Theleme Partners is also relatively very bullish on the stock, dishing out 19.84 percent of its 13F equity portfolio to WFC.

There weren't any hedge funds initiating brand new positions in the stock during the fourth quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Wells Fargo & Company (NYSE:WFC) but similarly valued. These stocks are Morgan Stanley (NYSE:MS), Sanofi (NYSE:SNY), The Boeing Company (NYSE:BA), Lowe's Companies, Inc. (NYSE:LOW), China Mobile Limited (NYSE:CHL), Royal Bank of Canada (NYSE:RY), and International Business Machines Corp. (NYSE:IBM). All of these stocks' market caps are similar to WFC's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MS,66,5665191,-4 SNY,15,1145189,-5 BA,55,1057323,12 LOW,71,5192115,-12 CHL,13,275668,3 RY,18,177204,2 IBM,51,998446,11 Average,41.3,2073019,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 41.3 hedge funds with bullish positions and the average amount invested in these stocks was $2073 million. That figure was $8749 million in WFC's case. Lowe's Companies, Inc. (NYSE:LOW) is the most popular stock in this table. On the other hand China Mobile Limited (NYSE:CHL) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Wells Fargo & Company (NYSE:WFC) is more popular among hedge funds. Our overall hedge fund sentiment score for WFC is 88.6. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks returned 12.3% in 2021 through April 19th but still managed to beat the market by 0.9 percentage points. Hedge funds were also right about betting on WFC as the stock returned 45.9% since the end of December (through 4/19) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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