American States Water Co (AWR): Hedge Funds Are Nibbling

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards American States Water Co (NYSE:AWR) at the end of the second quarter and determine whether the smart money was really smart about this stock.

Is American States Water Co (NYSE:AWR) undervalued? The smart money was becoming hopeful. The number of bullish hedge fund bets inched up by 1 recently. American States Water Co (NYSE:AWR) was in 20 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 21. Our calculations also showed that AWR isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 56 percentage points since March 2017 (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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we are checking out this junior gold mining stock and we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 to get excerpts of these letters in your inbox.Now we’re going to go over the key hedge fund action surrounding American States Water Co (NYSE:AWR).

What have hedge funds been doing with American States Water Co (NYSE:AWR)?

Heading into the third quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in AWR over the last 20 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Millennium Management held the most valuable stake in American States Water Co (NYSE:AWR), which was worth $17.3 million at the end of the third quarter. On the second spot was GLG Partners which amassed $8.1 million worth of shares. Renaissance Technologies, D E Shaw, and Citadel Investment Group 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 Algert Coldiron Investors allocated the biggest weight to American States Water Co (NYSE:AWR), around 0.32% of its 13F portfolio. PDT Partners is also relatively very bullish on the stock, earmarking 0.21 percent of its 13F equity portfolio to AWR.

As one would reasonably expect, key hedge funds have jumped into American States Water Co (NYSE:AWR) headfirst. Schonfeld Strategic Advisors, managed by Ryan Tolkin (CIO), initiated the largest position in American States Water Co (NYSE:AWR). Schonfeld Strategic Advisors had $1.2 million invested in the company at the end of the quarter. Peter Algert and Kevin Coldiron’s Algert Coldiron Investors also made a $0.9 million investment in the stock during the quarter. The other funds with brand new AWR positions are Paul Tudor Jones’s Tudor Investment Corp, Dmitry Balyasny’s Balyasny Asset Management, and Claes Fornell’s CSat Investment Advisory.

Let’s also examine hedge fund activity in other stocks similar to American States Water Co (NYSE:AWR). These stocks are Saia Inc (NASDAQ:SAIA), Altair Engineering Inc. (NASDAQ:ALTR), LCI Industries (NYSE:LCII), Louisiana-Pacific Corporation (NYSE:LPX), HMS Holdings Corp. (NASDAQ:HMSY), Meritage Homes Corp (NYSE:MTH), and CarGurus, Inc. (NASDAQ:CARG). This group of stocks’ market values resemble AWR’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.1 hedge funds with bullish positions and the average amount invested in these stocks was $254 million. That figure was $64 million in AWR’s case. Louisiana-Pacific Corporation (NYSE:LPX) is the most popular stock in this table. On the other hand Altair Engineering Inc. (NASDAQ:ALTR) is the least popular one with only 14 bullish hedge fund positions. American States Water Co (NYSE:AWR) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AWR is 34.6. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 24.8% in 2020 through the end of September and surpassed the market by 19.3 percentage points. Unfortunately AWR wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); AWR investors were disappointed as the stock returned -4.3% in the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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