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Here is What Hedge Funds Think About BorgWarner Inc. (BWA)

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Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the third quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 6 years and analyze what the smart money thinks of BorgWarner Inc. (NYSE:BWA) based on that data.

BorgWarner Inc. (NYSE:BWA) has experienced a decrease in hedge fund interest in recent months. BorgWarner Inc. (NYSE:BWA) was in 21 hedge funds' portfolios at the end of September. The all time high for this statistic is 35. There were 27 hedge funds in our database with BWA holdings at the end of June. Our calculations also showed that BWA isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 prices have more than doubled over the past year, so 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. Keeping this in mind we're going to go over the recent hedge fund action encompassing BorgWarner Inc. (NYSE:BWA).

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

At Q3's end, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -22% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards BWA over the last 25 quarters. So, let's examine 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?

The largest stake in BorgWarner Inc. (NYSE:BWA) was held by Ariel Investments, which reported holding $74.6 million worth of stock at the end of September. It was followed by Lodge Hill Capital with a $17.3 million position. Other investors bullish on the company included GAMCO Investors, Bridgewater Associates, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Lodge Hill Capital allocated the biggest weight to BorgWarner Inc. (NYSE:BWA), around 5.45% of its 13F portfolio. Cumberland Associates / Springowl Associates is also relatively very bullish on the stock, dishing out 4.17 percent of its 13F equity portfolio to BWA.

Judging by the fact that BorgWarner Inc. (NYSE:BWA) has experienced falling interest from hedge fund managers, we can see that there exists a select few money managers who sold off their full holdings by the end of the third quarter. Interestingly, Matthew Stadelman's Diamond Hill Capital sold off the largest investment of the 750 funds tracked by Insider Monkey, comprising an estimated $355.6 million in stock. Louis Bacon's fund, Moore Global Investments, also said goodbye to its stock, about $9.7 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 6 funds by the end of the third quarter.

Let's also examine hedge fund activity in other stocks similar to BorgWarner Inc. (NYSE:BWA). These stocks are Pegasystems Inc. (NASDAQ:PEGA), IAC/InterActiveCorp (NASDAQ:IAC), Aegon N.V. (NYSE:AEG), Tapestry, Inc. (NYSE:TPR), Watsco Inc (NYSE:WSO), agilon health inc. (NYSE:AGL), and Oak Street Health, Inc. (NYSE:OSH). 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 PEGA,25,1891439,-2 IAC,47,1426626,-3 AEG,5,12525,-1 TPR,41,887231,0 WSO,30,414892,4 AGL,18,270101,18 OSH,19,395210,-14 Average,26.4,756861,0.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.4 hedge funds with bullish positions and the average amount invested in these stocks was $757 million. That figure was $170 million in BWA's case. IAC/InterActiveCorp (NASDAQ:IAC) is the most popular stock in this table. On the other hand Aegon N.V. (NYSE:AEG) is the least popular one with only 5 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 36. 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 29.6% in 2021 and surpassed the market again by 3.6 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 4.7% since the end of September (through 12/31) 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.