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Did Hedge Funds Make The Right Call On American Water Works Company, Inc. (AWK) ?

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). 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 Water Works Company, Inc. (NYSE:AWK) at the end of the first quarter and determine whether the smart money was really smart about this stock.

American Water Works Company, Inc. (NYSE:AWK) has experienced an increase in enthusiasm from smart money of late. Our calculations also showed that AWK isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

In the eyes of most stock holders, hedge funds are seen as unimportant, old investment vehicles of years past. While there are more than 8000 funds trading today, We look at the bigwigs of this club, about 850 funds. These investment experts orchestrate bulk of the smart money’s total asset base, and by paying attention to their top equity investments, Insider Monkey has discovered many investment strategies that have historically defeated the broader indices. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. Now let’s take a peek at the fresh hedge fund action surrounding American Water Works Company, Inc. (NYSE:AWK).

How have hedgies been trading American Water Works Company, Inc. (NYSE:AWK)?

At the end of the first quarter, a total of 30 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards AWK over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Is AWK A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, Impax Asset Management, managed by Ian Simm, holds the number one position in American Water Works Company, Inc. (NYSE:AWK). Impax Asset Management has a $288.3 million position in the stock, comprising 3.8% of its 13F portfolio. The second largest stake is held by Cliff Asness of AQR Capital Management, with a $92 million position; 0.2% of its 13F portfolio is allocated to the company. Some other hedge funds and institutional investors that hold long positions comprise  Renaissance Technologies, John Overdeck and David Siegel’s Two Sigma Advisors and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Trellus Management Company allocated the biggest weight to American Water Works Company, Inc. (NYSE:AWK), around 11.07% of its 13F portfolio. Impax Asset Management is also relatively very bullish on the stock, dishing out 3.84 percent of its 13F equity portfolio to AWK.

As aggregate interest increased, specific money managers were breaking ground themselves. Locust Wood Capital Advisers, managed by Stephen J. Errico, initiated the most outsized position in American Water Works Company, Inc. (NYSE:AWK). Locust Wood Capital Advisers had $13.2 million invested in the company at the end of the quarter. Adam Usdan’s Trellus Management Company also made a $6.2 million investment in the stock during the quarter. The other funds with brand new AWK positions are Ken Griffin’s Citadel Investment Group, Sara Nainzadeh’s Centenus Global Management, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.

Let’s now take a look at hedge fund activity in other stocks similar to American Water Works Company, Inc. (NYSE:AWK). We will take a look at CoStar Group Inc (NASDAQ:CSGP), V.F. Corporation (NYSE:VFC), ResMed Inc. (NYSE:RMD), and PACCAR Inc (NASDAQ:PCAR). This group of stocks’ market valuations are similar to AWK’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CSGP 40 1689677 -4
VFC 19 171262 -10
RMD 33 167543 12
PCAR 38 486230 2
Average 32.5 628678 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 32.5 hedge funds with bullish positions and the average amount invested in these stocks was $629 million. That figure was $633 million in AWK’s case. CoStar Group Inc (NASDAQ:CSGP) is the most popular stock in this table. On the other hand V.F. Corporation (NYSE:VFC) is the least popular one with only 19 bullish hedge fund positions. American Water Works Company, Inc. (NYSE:AWK) is not the least popular stock in this group but hedge fund interest is still below average. 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 12.3% in 2020 through June 30th and surpassed the market by 15.5 percentage points. Unfortunately AWK wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); AWK investors were disappointed as the stock returned 8.1% during the second 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.

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