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In this article you are going to find out whether hedge funds think BorgWarner Inc. (NYSE:BWA) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Is BWA stock a buy? BorgWarner Inc. (NYSE:BWA) investors should pay attention to a decrease in hedge fund sentiment in recent months. BorgWarner Inc. (NYSE:BWA) was in 27 hedge funds' portfolios at the end of December. The all time high for this statistic is 35. Our calculations also showed that BWA isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 124 percentage points since March 2017 (see the details here).
Ric Dillon of Diamond Hill Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now 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. Now we're going to check out the key hedge fund action surrounding BorgWarner Inc. (NYSE:BWA).
Do Hedge Funds Think BWA Is A Good Stock To Buy Now?
Heading into the first quarter of 2021, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards BWA over the last 22 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
More specifically, Diamond Hill Capital was the largest shareholder of BorgWarner Inc. (NYSE:BWA), with a stake worth $392.1 million reported as of the end of December. Trailing Diamond Hill Capital was AQR Capital Management, which amassed a stake valued at $74.3 million. Ariel Investments, Arrowstreet Capital, and D E Shaw 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 Diamond Hill Capital allocated the biggest weight to BorgWarner Inc. (NYSE:BWA), around 1.85% of its 13F portfolio. Moon Capital is also relatively very bullish on the stock, setting aside 1 percent of its 13F equity portfolio to BWA.
Judging by the fact that BorgWarner Inc. (NYSE:BWA) has experienced declining sentiment from the smart money, it's safe to say that there lies a certain "tier" of fund managers who were dropping their entire stakes by the end of the fourth quarter. Intriguingly, Matthew Mark's Jet Capital Investors said goodbye to the biggest stake of all the hedgies monitored by Insider Monkey, comprising an estimated $22.6 million in stock. Alexander Mitchell's fund, Scopus Asset Management, also said goodbye to its stock, about $12.8 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 3 funds by the end of the fourth quarter.
Let's now review hedge fund activity in other stocks similar to BorgWarner Inc. (NYSE:BWA). We will take a look at Tenaris S.A. (NYSE:TS), AngloGold Ashanti Limited (NYSE:AU), Everest Re Group Ltd (NYSE:RE), Darling Ingredients Inc. (NYSE:DAR), New Fortress Energy LLC (NASDAQ:NFE), Amdocs Limited (NYSE:DOX), and Weibo Corp (NASDAQ:WB). All of these stocks' market caps are similar to BWA's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TS,12,261571,0 AU,17,458467,0 RE,29,475245,-7 DAR,36,667724,5 NFE,11,55372,4 DOX,20,452033,-9 WB,13,90176,0 Average,19.7,351513,-1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.7 hedge funds with bullish positions and the average amount invested in these stocks was $352 million. That figure was $645 million in BWA's case. Darling Ingredients Inc. (NYSE:DAR) is the most popular stock in this table. On the other hand New Fortress Energy LLC (NASDAQ:NFE) is the least popular one with only 11 bullish hedge fund positions. BorgWarner Inc. (NYSE:BWA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for BWA is 57.1. 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 gained 12.3% in 2021 through April 19th and still beat the market by 0.9 percentage points. Hedge funds were also right about betting on BWA as the stock returned 28.1% since the end of Q4 (through 4/19) 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.