Out of thousands of stocks that are currently traded on the market, it is difficult to determine those that can really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of over 700 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Mueller Water Products, Inc. (NYSE:MWA).
Hedge fund interest in Mueller Water Products, Inc. (NYSE:MWA) shares was flat at the end of last quarter. This is usually a negative indicator. 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 NOW Inc (NYSE:DNOW), B&G Foods, Inc. (NYSE:BGS), and Flagstar Bancorp Inc (NYSE:FBC) 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. Our research has shown that hedge funds' small-cap stock picks managed to the 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 market by 18 percentage points since May 2014 through December 3, 2018 (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.
[caption id="attachment_375529" align="aligncenter" width="450"] Mario Gabelli of GAMCO Investors[/caption]
We're going to take a look at the key hedge fund action encompassing Mueller Water Products, Inc. (NYSE:MWA).
Hedge fund activity in Mueller Water Products, Inc. (NYSE:MWA)
Heading into the fourth quarter of 2018, a total of 16 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2018. Below, you can check out the change in hedge fund sentiment towards MWA over the last 13 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Impax Asset Management was the largest shareholder of Mueller Water Products, Inc. (NYSE:MWA), with a stake worth $92.6 million reported as of the end of September. Trailing Impax Asset Management was GAMCO Investors, which amassed a stake valued at $70.3 million. Royce & Associates, Renaissance Technologies, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Mueller Water Products, Inc. (NYSE:MWA) has witnessed bearish sentiment from the smart money, logic holds that there lies a certain "tier" of hedge funds that elected to cut their full holdings last quarter. It's worth mentioning that Matthew Hulsizer's PEAK6 Capital Management said goodbye to the biggest stake of the 700 funds monitored by Insider Monkey, worth an estimated $0.2 million in stock. Gavin Saitowitz and Cisco J. del Valle's fund, Springbok Capital, also dropped its stock, about $0 million worth. These moves are interesting, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now review hedge fund activity in other stocks similar to Mueller Water Products, Inc. (NYSE:MWA). We will take a look at NOW Inc (NYSE:DNOW), B&G Foods, Inc. (NYSE:BGS), Flagstar Bancorp Inc (NYSE:FBC), and Hailiang Education Group Inc. (NASDAQ:HLG). This group of stocks' market values are similar to MWA's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DNOW,11,79327,2 BGS,13,82364,-2 FBC,15,167894,-6 HLG,4,8415,-1 Average,10.75,85,-1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.75 hedge funds with bullish positions and the average amount invested in these stocks was $85 million. That figure was $236 million in MWA's case. Flagstar Bancorp Inc (NYSE:FBC) is the most popular stock in this table. On the other hand Hailiang Education Group Inc. (NASDAQ:HLG) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Mueller Water Products, Inc. (NYSE:MWA) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.
Disclosure: None. This article was originally published at Insider Monkey.