Babcock & Wilcox Enterprises Inc (BW): Hedge Funds Can’t Make Up Their Mind

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

Hedge fund interest in Babcock & Wilcox Enterprises Inc (NYSE:BW) shares was flat during the third quarter. This is usually a negative indicator. 20 hedge funds that we track owned the stock on September 30, same as on June 30. At the end of this article we will also compare BW to other stocks including Five9 Inc (NASDAQ:FIVN), Flotek Industries Inc (NYSE:FTK), and Deltic Timber Corp (NYSE:DEL) to get a better sense of its popularity.

At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

Hedge fund activity in Babcock & Wilcox Enterprises Inc (NYSE:BW)

Heading into the fourth quarter of 2016, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, unchanged from the second quarter of 2016. The graph below displays the number of hedge funds with bullish position in BW over the last 5 quarters, which shows hedge fund ownership peaking at the end of Q1 and declining by over 20% since. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC has the most valuable position in Babcock & Wilcox Enterprises Inc (NYSE:BW), worth close to $51.1 million. The second most bullish fund manager is Daruma Asset Management, led by Mariko Gordon, which holds a $41.2 million position; the fund has 2.5% of its 13F portfolio invested in the stock. Remaining members of the smart money that hold long positions consist of Amy Minella’s Cardinal Capital, David E. Shaw’s D E Shaw, and Clifton S. Robbins’ Blue Harbour Group. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Seeing as Babcock & Wilcox Enterprises Inc (NYSE:BW) has experienced a decline in interest from the smart money, logic holds that there exists a select few hedgies that decided to sell off their full holdings by the end of the third quarter. Interestingly, Jay Petschek and Steven Major’s Corsair Capital Management dropped the biggest stake of the 700 funds studied by Insider Monkey, valued at about $1.6 million in stock, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund also sold off about $1.6 million worth of shares.

Let’s go over hedge fund activity in other stocks similar to Babcock & Wilcox Enterprises Inc (NYSE:BW). We will take a look at Five9 Inc (NASDAQ:FIVN), Flotek Industries Inc (NYSE:FTK), Deltic Timber Corp (NYSE:DEL), and CF Corp (NASDAQ:CFCO). This group of stocks’ market valuations match BW’s market valuation.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $208 million. That figure was $199 million in BW’s case. Five9 Inc (NASDAQ:FIVN) is the most popular stock in this table. On the other hand Deltic Timber Corp (NYSE:DEL) is the least popular one with only 4 bullish hedge fund positions. Babcock & Wilcox Enterprises Inc (NYSE:BW) 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. In this regard FIVN might be a better candidate to consider taking a long position in.

Disclosure: None