Hedge Funds Keep Dumping Babcock & Wilcox Enterprises Inc (BW)

In this article we are going to use hedge fund sentiment as a tool and determine whether Babcock & Wilcox Enterprises Inc (NYSE:BW) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is Babcock & Wilcox Enterprises Inc (NYSE:BW) a superb investment right now? Investors who are in the know were in a pessimistic mood. The number of long hedge fund positions retreated by 2 lately. Babcock & Wilcox Enterprises Inc (NYSE:BW) was in 4 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 26. Our calculations also showed that BW isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). There were 6 hedge funds in our database with BW holdings at the end of June.

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

In the eyes of most traders, hedge funds are perceived as underperforming, outdated investment vehicles of the past. While there are greater than 8000 funds in operation at present, We look at the leaders of this club, around 850 funds. Most estimates calculate that this group of people shepherd the lion’s share of all hedge funds’ total capital, and by paying attention to their first-class picks, Insider Monkey has come up with numerous investment strategies that have historically outperformed Mr. Market. Insider Monkey’s flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .

Eric Singer VIEX Capital

Eric Singer of VIEX Capital Advisors

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 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. Now we’re going to take a look at the fresh hedge fund action encompassing Babcock & Wilcox Enterprises Inc (NYSE:BW).

How are hedge funds trading Babcock & Wilcox Enterprises Inc (NYSE:BW)?

At Q3’s end, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -33% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BW over the last 21 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, SCW Capital Management, managed by John R. Wagner, holds the most valuable position in Babcock & Wilcox Enterprises Inc (NYSE:BW). SCW Capital Management has a $4.4 million position in the stock, comprising 2.5% of its 13F portfolio. Coming in second is Eric Singer of VIEX Capital Advisors, with a $1 million position; the fund has 0.9% of its 13F portfolio invested in the stock. Other peers that hold long positions contain Renaissance Technologies, Nelson Obus’s Wynnefield Capital and . In terms of the portfolio weights assigned to each position SCW Capital Management allocated the biggest weight to Babcock & Wilcox Enterprises Inc (NYSE:BW), around 2.54% of its 13F portfolio. VIEX Capital Advisors is also relatively very bullish on the stock, setting aside 0.95 percent of its 13F equity portfolio to BW.

Because Babcock & Wilcox Enterprises Inc (NYSE:BW) has faced bearish sentiment from the smart money, logic holds that there lies a certain “tier” of money managers that slashed their positions entirely by the end of the third quarter. Intriguingly, Israel Englander’s Millennium Management said goodbye to the largest position of all the hedgies tracked by Insider Monkey, totaling an estimated $0.1 million in stock. Ken Griffin’s fund, Citadel Investment Group, also dropped its stock, about $0 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds by the end of the third quarter.

Let’s check out hedge fund activity in other stocks similar to Babcock & Wilcox Enterprises Inc (NYSE:BW). These stocks are Safeguard Scientifics, Inc (NYSE:SFE), Natural Gas Services Group, Inc. (NYSE:NGS), Mistras Group, Inc. (NYSE:MG), StoneMor Inc. (NYSE:STON), Community Bankers Trust Corp. (NASDAQ:ESXB), HC2 Holdings Inc (NYSE:HCHC), and 9 Meters Biopharma, Inc. (NASDAQ:NMTR). This group of stocks’ market values resemble BW’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SFE 6 8901 -4
NGS 11 13926 1
MG 12 9811 1
STON 3 78903 -1
ESXB 4 8673 -2
HCHC 11 3880 -1
NMTR 5 21738 2
Average 7.4 20833 -0.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.4 hedge funds with bullish positions and the average amount invested in these stocks was $21 million. That figure was $6 million in BW’s case. Mistras Group, Inc. (NYSE:MG) is the most popular stock in this table. On the other hand StoneMor Inc. (NYSE:STON) is the least popular one with only 3 bullish hedge fund positions. Babcock & Wilcox Enterprises Inc (NYSE:BW) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for BW is 13.2. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on BW as the stock returned 65.9% since the end of the third quarter (through 11/27) and outperformed the market by an even larger margin.

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