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Did Hedge Funds Make The Right Call On Badger Meter, Inc. (BMI) ?

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 first 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 4.5 years and analyze what the smart money thinks of Badger Meter, Inc. (NYSE:BMI) based on that data and determine whether they were really smart about the stock.

Badger Meter, Inc. (NYSE:BMI) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 20 hedge funds’ portfolios at the end of the first quarter of 2020. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Hub Group Inc (NASDAQ:HUBG), Arvinas, Inc. (NASDAQ:ARVN), and NIC Inc. (NASDAQ:EGOV) to gather more data points. Our calculations also showed that BMI 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 financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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 under-the-radar lithium stock. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now we’re going to go over the recent hedge fund action surrounding Badger Meter, Inc. (NYSE:BMI).

What does smart money think about Badger Meter, Inc. (NYSE:BMI)?

At the end of the first quarter, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 14 hedge funds with a bullish position in BMI a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

More specifically, Impax Asset Management was the largest shareholder of Badger Meter, Inc. (NYSE:BMI), with a stake worth $84.1 million reported as of the end of September. Trailing Impax Asset Management was Arrowstreet Capital, which amassed a stake valued at $9.9 million. GAMCO Investors, Royce & Associates, and Winton Capital Management 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 Impax Asset Management allocated the biggest weight to Badger Meter, Inc. (NYSE:BMI), around 1.12% of its 13F portfolio. AlphaCrest Capital Management is also relatively very bullish on the stock, dishing out 0.1 percent of its 13F equity portfolio to BMI.

Because Badger Meter, Inc. (NYSE:BMI) has experienced declining sentiment from the entirety of the hedge funds we track, we can see that there were a few funds that slashed their full holdings in the first quarter. Intriguingly, Paul Marshall and Ian Wace’s Marshall Wace LLP said goodbye to the largest position of the “upper crust” of funds monitored by Insider Monkey, comprising about $18.3 million in stock. Michael Gelband’s fund, ExodusPoint Capital, also said goodbye to its stock, about $0.4 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Badger Meter, Inc. (NYSE:BMI) but similarly valued. These stocks are Hub Group Inc (NASDAQ:HUBG), Arvinas, Inc. (NASDAQ:ARVN), NIC Inc. (NASDAQ:EGOV), and 21Vianet Group Inc (NASDAQ:VNET). All of these stocks’ market caps match BMI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HUBG 17 190642 -2
ARVN 25 431346 -1
EGOV 17 105397 -5
VNET 15 129811 -1
Average 18.5 214299 -2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $214 million. That figure was $125 million in BMI’s case. Arvinas, Inc. (NASDAQ:ARVN) is the most popular stock in this table. On the other hand 21Vianet Group Inc (NASDAQ:VNET) is the least popular one with only 15 bullish hedge fund positions. Badger Meter, Inc. (NYSE:BMI) 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 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 18.6% in 2020 through July 27th but beat the market by 17.1 percentage points. Unfortunately BMI wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on BMI were disappointed as the stock returned 19.5% during the same time period 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 many of these stocks already outperformed the market so far this year.

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