We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Mueller Water Products, Inc. (NYSE:MWA).
Mueller Water Products, Inc. (NYSE:MWA) investors should pay attention to a decrease in hedge fund sentiment recently. Our calculations also showed that MWA isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Jeffrey Bronchick of Cove Street Capital
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to view the recent hedge fund action encompassing Mueller Water Products, Inc. (NYSE:MWA).
How have hedgies been trading Mueller Water Products, Inc. (NYSE:MWA)?
Heading into the first quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in MWA over the last 18 quarters. With the smart money’s sentiment swirling, there exists a select group of key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
The largest stake in Mueller Water Products, Inc. (NYSE:MWA) was held by Impax Asset Management, which reported holding $128.2 million worth of stock at the end of September. It was followed by GAMCO Investors with a $64.8 million position. Other investors bullish on the company included Millennium Management, Renaissance Technologies, and Cove Street Capital. In terms of the portfolio weights assigned to each position Water Asset Management allocated the biggest weight to Mueller Water Products, Inc. (NYSE:MWA), around 4.37% of its 13F portfolio. Impax Asset Management is also relatively very bullish on the stock, earmarking 1.43 percent of its 13F equity portfolio to MWA.
Seeing as Mueller Water Products, Inc. (NYSE:MWA) has witnessed bearish sentiment from hedge fund managers, it’s safe to say that there was a specific group of funds that decided to sell off their positions entirely by the end of the third quarter. It’s worth mentioning that Paul Marshall and Ian Wace’s Marshall Wace LLP said goodbye to the biggest position of the 750 funds monitored by Insider Monkey, valued at an estimated $4.3 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also sold off its stock, about $0.6 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 3 funds by the end of the third quarter.
Let’s go over hedge fund activity in other stocks similar to Mueller Water Products, Inc. (NYSE:MWA). We will take a look at Pacira Pharmaceuticals Inc (NASDAQ:PCRX), Badger Meter, Inc. (NYSE:BMI), Vicor Corp (NASDAQ:VICR), and Adtalem Global Education Inc. (NYSE:ATGE). This group of stocks’ market valuations are closest to MWA’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PCRX | 28 | 408153 | -3 |
| BMI | 20 | 178333 | 2 |
| VICR | 12 | 38689 | 0 |
| ATGE | 20 | 277855 | -6 |
| Average | 20 | 225758 | -1.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $226 million. That figure was $277 million in MWA’s case. Pacira Pharmaceuticals Inc (NASDAQ:PCRX) is the most popular stock in this table. On the other hand Vicor Corp (NASDAQ:VICR) is the least popular one with only 12 bullish hedge fund positions. Mueller Water Products, Inc. (NYSE:MWA) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately MWA wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MWA investors were disappointed as the stock returned -32.9% during the same time period 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 most of these stocks already outperformed the market in 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
