Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Xylem Inc (NYSE:XYL).
Xylem Inc (NYSE:XYL) was in 22 hedge funds’ portfolios at the end of September. The all time high for this statistic is 28. XYL has seen a decrease in enthusiasm from smart money in recent months. There were 23 hedge funds in our database with XYL positions at the end of the second quarter. Our calculations also showed that XYL isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now let’s take a peek at the new hedge fund action encompassing Xylem Inc (NYSE:XYL).
Do Hedge Funds Think XYL Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2021, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards XYL over the last 25 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).
The largest stake in Xylem Inc (NYSE:XYL) was held by Impax Asset Management, which reported holding $618.9 million worth of stock at the end of September. It was followed by GAMCO Investors with a $93 million position. Other investors bullish on the company included Montanaro Asset Management, Millennium Management, and AQR Capital Management. In terms of the portfolio weights assigned to each position Montanaro Asset Management allocated the biggest weight to Xylem Inc (NYSE:XYL), around 3.79% of its 13F portfolio. Impax Asset Management is also relatively very bullish on the stock, dishing out 2.54 percent of its 13F equity portfolio to XYL.
Since Xylem Inc (NYSE:XYL) has faced falling interest from the entirety of the hedge funds we track, it’s safe to say that there were a few hedgies that decided to sell off their full holdings by the end of the third quarter. Interestingly, Ray Dalio’s Bridgewater Associates said goodbye to the largest position of all the hedgies monitored by Insider Monkey, valued at close to $5.8 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also dropped its stock, about $3.3 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 1 funds by the end of the third quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Xylem Inc (NYSE:XYL) but similarly valued. We will take a look at Hormel Foods Corporation (NYSE:HRL), Imperial Oil Limited (NYSE:IMO), Bio-Rad Laboratories, Inc. (NYSE:BIO), Qualtrics International Inc. (NASDAQ:XM), Warner Music Group Corp. (NASDAQ:WMG), Waters Corporation (NYSE:WAT), and PerkinElmer, Inc. (NYSE:PKI). This group of stocks’ market values match XYL’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.9 hedge funds with bullish positions and the average amount invested in these stocks was $1326 million. That figure was $821 million in XYL’s case. Waters Corporation (NYSE:WAT) is the most popular stock in this table. On the other hand Imperial Oil Limited (NYSE:IMO) is the least popular one with only 10 bullish hedge fund positions. Xylem Inc (NYSE:XYL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for XYL is 47.6. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and surpassed the market again by 3.6 percentage points. Unfortunately XYL wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); XYL investors were disappointed as the stock returned -2.8% since the end of September (through 12/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.
Follow Xylem Inc. (NYSE:XYL)
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Disclosure: None. This article was originally published at Insider Monkey.