Did Hedge Funds Make The Right Call On Mueller Water Products, Inc. (MWA) ?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtMueller Water Products, Inc. (NYSE:MWA) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Mueller Water Products, Inc. (NYSE:MWA) 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. At the end of this article we will also compare MWA to other stocks including McGrath RentCorp (NASDAQ:MGRC), Employers Holdings, Inc. (NYSE:EIG), and WSFS Financial Corporation (NASDAQ:WSFS) to get a better sense of its popularity.

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

In the financial world there are several gauges market participants can use to grade publicly traded companies. A couple of the less known gauges are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the best picks of the top money managers can outperform the broader indices by a significant margin (see the details here).

Chuck Royce

Chuck Royce of Royce & Associates

At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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. With all of this in mind let’s take a peek at the recent hedge fund action surrounding Mueller Water Products, Inc. (NYSE:MWA).

How have hedgies been trading Mueller Water Products, Inc. (NYSE:MWA)?

At Q1’s end, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MWA over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Is MWA A Good Stock To Buy?

Among these funds, Impax Asset Management held the most valuable stake in Mueller Water Products, Inc. (NYSE:MWA), which was worth $93.1 million at the end of the third quarter. On the second spot was GAMCO Investors which amassed $42.4 million worth of shares. Millennium Management, Cove Street Capital, and Royce & Associates 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 Cove Street Capital allocated the biggest weight to Mueller Water Products, Inc. (NYSE:MWA), around 1.37% of its 13F portfolio. Impax Asset Management is also relatively very bullish on the stock, designating 1.24 percent of its 13F equity portfolio to MWA.

Judging by the fact that Mueller Water Products, Inc. (NYSE:MWA) has faced falling interest from the smart money, it’s safe to say that there is a sect of hedge funds that slashed their entire stakes heading into Q4. It’s worth mentioning that Matt Diserio and Disque Deane Jr.’s Water Asset Management said goodbye to the biggest position of the 750 funds watched by Insider Monkey, valued at about $1.9 million in stock. Brandon Haley’s fund, Holocene Advisors, also sold off its stock, about $1.1 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Mueller Water Products, Inc. (NYSE:MWA) but similarly valued. We will take a look at McGrath RentCorp (NASDAQ:MGRC), Employers Holdings, Inc. (NYSE:EIG), WSFS Financial Corporation (NASDAQ:WSFS), and OSI Systems, Inc. (NASDAQ:OSIS). This group of stocks’ market values match MWA’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MGRC 20 90738 0
EIG 10 52392 -5
WSFS 12 99147 -4
OSIS 15 12739 -5
Average 14.25 63754 -3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $64 million. That figure was $181 million in MWA’s case. McGrath RentCorp (NASDAQ:MGRC) is the most popular stock in this table. On the other hand Employers Holdings, Inc. (NYSE:EIG) is the least popular one with only 10 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. 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 still beat the market by 17.1 percentage points. Hedge funds were also right about betting on MWA, though not to the same extent, as the stock returned 27.5% since the end of March and outperformed the market as well.

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