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BorgWarner Inc. (BWA): Hedge Funds Are Cautiously Watching

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The financial regulations require hedge funds and wealthy investors that exceeded the $100 million holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn't the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds' positions on June 30th. We at Insider Monkey have made an extensive database of more than 873 of those established hedge funds and famous value investors' filings. In this article, we analyze how these elite funds and prominent investors traded BorgWarner Inc. (NYSE:BWA) based on those filings.

Hedge fund interest in BorgWarner Inc. (NYSE:BWA) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that BWA isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Zynga Inc (NASDAQ:ZNGA), A. O. Smith Corporation (NYSE:AOS), and AMERCO (NASDAQ:UHAL) to gather more data points.

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. Hedge funds have more than $3.5 trillion in assets under management, so you can't expect their entire portfolios to beat the market by large margins. 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 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds' moves today.

John Rogers’ Top 10 Stock Picks
John Rogers’ Top 10 Stock Picks

John Rogers of Ariel Investments

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium 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. Now let's take a look at the new hedge fund action regarding BorgWarner Inc. (NYSE:BWA).

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

At the end of the second quarter, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the first quarter of 2020. On the other hand, there were a total of 35 hedge funds with a bullish position in BWA 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.

Is BWA A Good Stock To Buy?
Is BWA A Good Stock To Buy?

Among these funds, Diamond Hill Capital held the most valuable stake in BorgWarner Inc. (NYSE:BWA), which was worth $355.6 million at the end of the second quarter. On the second spot was Ariel Investments which amassed $76.1 million worth of shares. AQR Capital Management, GAMCO Investors, and Citadel Investment Group 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 Lodge Hill Capital allocated the biggest weight to BorgWarner Inc. (NYSE:BWA), around 5.14% of its 13F portfolio. Cumberland Associates / Springowl Associates is also relatively very bullish on the stock, dishing out 3.49 percent of its 13F equity portfolio to BWA.

Because BorgWarner Inc. (NYSE:BWA) has witnessed bearish sentiment from the entirety of the hedge funds we track, logic holds that there were a few hedgies that elected to cut their full holdings last quarter. Interestingly, Mark Lee's Mountaineer Partners Management dumped the largest investment of all the hedgies watched by Insider Monkey, comprising close to $8.9 million in stock. Greg Eisner's fund, Engineers Gate Manager, also dropped its stock, about $2.5 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's now take a look at hedge fund activity in other stocks similar to BorgWarner Inc. (NYSE:BWA). We will take a look at Zynga Inc (NASDAQ:ZNGA), A. O. Smith Corporation (NYSE:AOS), AMERCO (NASDAQ:UHAL), Cable One Inc (NYSE:CABO), Westlake Chemical Corporation (NYSE:WLK), Booz Allen Hamilton Holding Corporation (NYSE:BAH), and Bruker Corporation (NASDAQ:BRKR). This group of stocks' market values are closest to BWA's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ZNGA,49,1270452,2 AOS,26,584108,2 UHAL,21,817145,-2 CABO,20,703195,-3 WLK,35,269784,9 BAH,29,214976,0 BRKR,31,459507,9 Average,30.1,617024,2.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.1 hedge funds with bullish positions and the average amount invested in these stocks was $617 million. That figure was $568 million in BWA's case. Zynga Inc (NASDAQ:ZNGA) is the most popular stock in this table. On the other hand Cable One Inc (NYSE:CABO) is the least popular one with only 20 bullish hedge fund positions. BorgWarner Inc. (NYSE:BWA) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for BWA is 40.2. 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. 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 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 24.9% in 2021 through October 15th and surpassed the market again by 4.5 percentage points. Unfortunately BWA wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); BWA investors were disappointed as the stock returned -2.7% since the end of June (through 10/15) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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