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Is Mueller Water Products, Inc. (MWA) Going to Burn These Hedge Funds?

Nina Todic

With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the second quarter. One of these stocks was Mueller Water Products, Inc. (NYSE:MWA).

Is Mueller Water Products, Inc. (NYSE:MWA) a buy here? Investors who are in the know are becoming hopeful. The number of long hedge fund bets improved by 2 in recent months. Our calculations also showed that MWA isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_375529" align="aligncenter" width="450"] Mario Gabelli of GAMCO Investors[/caption]

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's take a look at the new hedge fund action surrounding Mueller Water Products, Inc. (NYSE:MWA).

What does smart money think about Mueller Water Products, Inc. (NYSE:MWA)?

At Q3's end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards MWA over the last 17 quarters. With the smart money's sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Ian Simm's Impax Asset Management has the largest position in Mueller Water Products, Inc. (NYSE:MWA), worth close to $126.1 million, corresponding to 1.6% of its total 13F portfolio. On Impax Asset Management's heels is GAMCO Investors, led by Mario Gabelli, holding a $62.9 million position; the fund has 0.5% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that are bullish comprise Israel Englander's Millennium Management, Renaissance Technologies and Chuck Royce's Royce & Associates. 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 2.62% of its 13F portfolio. Impax Asset Management is also relatively very bullish on the stock, designating 1.64 percent of its 13F equity portfolio to MWA.

Now, key hedge funds were leading the bulls' herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the biggest position in Mueller Water Products, Inc. (NYSE:MWA). Arrowstreet Capital had $0.8 million invested in the company at the end of the quarter. Dmitry Balyasny's Balyasny Asset Management also made a $0.6 million investment in the stock during the quarter. The following funds were also among the new MWA investors: Matthew Hulsizer's PEAK6 Capital Management and Steve Cohen's Point72 Asset Management.

Let's now take a look at hedge fund activity in other stocks similar to Mueller Water Products, Inc. (NYSE:MWA). We will take a look at PDC Energy Inc (NASDAQ:PDCE), Zogenix, Inc. (NASDAQ:ZGNX), NGL Energy Partners LP (NYSE:NGL), and LexinFintech Holdings Ltd. (NASDAQ:LX). All of these stocks' market caps resemble MWA's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PDCE,23,231814,9 ZGNX,34,834448,6 NGL,4,38721,0 LX,15,75258,0 Average,19,295060,3.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $295 million. That figure was $283 million in MWA's case. Zogenix, Inc. (NASDAQ:ZGNX) is the most popular stock in this table. On the other hand NGL Energy Partners LP (NYSE:NGL) is the least popular one with only 4 bullish hedge fund positions. Mueller Water Products, Inc. (NYSE:MWA) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately MWA wasn't nearly as popular as these 20 stocks and hedge funds that were betting on MWA were disappointed as the stock returned 0.8% during the fourth quarter (through the end of November) 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 many of these stocks already outperformed the market so far this year.

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

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