Is AWK A Good Stock To Buy According To Hedge Funds?

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 (Recession is Imminent: We Need A Travel Ban NOW). 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).

Is AWK a good stock to buy? American Water Works Company, Inc. (NYSE:AWK) was in 31 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 40. AWK investors should be aware of an increase in activity from the world’s largest hedge funds lately. There were 30 hedge funds in our database with AWK positions at the end of the second quarter. Our calculations also showed that AWK 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).

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

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Blair Levinsky of Waratah Capital Advisors

Blair Levinsky of Waratah Capital Advisors

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 15 best blue chip stocks to buy 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 American Water Works Company, Inc. (NYSE:AWK).

Do Hedge Funds Think AWK Is A Good Stock To Buy Now?

At the end of the third quarter, a total of 31 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 3% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in AWK over the last 21 quarters. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

The largest stake in American Water Works Company, Inc. (NYSE:AWK) was held by Impax Asset Management, which reported holding $442.5 million worth of stock at the end of September. It was followed by AQR Capital Management with a $68.2 million position. Other investors bullish on the company included D E Shaw, Adage Capital Management, and Osterweis Capital Management. 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 7.66% of its 13F portfolio. Impax Asset Management is also relatively very bullish on the stock, designating 3.87 percent of its 13F equity portfolio to AWK.

As aggregate interest increased, some big names have been driving this bullishness. Steadfast Capital Management, managed by Robert Pitts, assembled the largest position in American Water Works Company, Inc. (NYSE:AWK). Steadfast Capital Management had $3.7 million invested in the company at the end of the quarter. James Dondero’s Highland Capital Management also initiated a $1.4 million position during the quarter. The other funds with brand new AWK positions are David Harding’s Winton Capital Management, Brad Dunkley and Blair Levinsky’s Waratah Capital Advisors, and Greg Eisner’s Engineers Gate Manager.

Let’s check out hedge fund activity in other stocks similar to American Water Works Company, Inc. (NYSE:AWK). These stocks are HP Inc. (NYSE:HPQ), Consolidated Edison, Inc. (NYSE:ED), Parker-Hannifin Corporation (NYSE:PH), Liberty Broadband Corp (NASDAQ:LBRDK), NIO Limited (NYSE:NIO), Microchip Technology Incorporated (NASDAQ:MCHP), and AFLAC Incorporated (NYSE:AFL). 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
HPQ 41 1114928 6
ED 18 387478 -13
PH 51 2050679 12
LBRDK 56 4166611 -2
NIO 35 1400815 5
MCHP 35 629361 2
AFL 34 479100 0
Average 38.6 1461282 1.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.6 hedge funds with bullish positions and the average amount invested in these stocks was $1461 million. That figure was $679 million in AWK’s case. Liberty Broadband Corp (NASDAQ:LBRDK) is the most popular stock in this table. On the other hand Consolidated Edison, Inc. (NYSE:ED) is the least popular one with only 18 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. Our overall hedge fund sentiment score for AWK is 46.4. 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 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 33.3% in 2020 through December 18th and surpassed the market again by 16.4 percentage points. Unfortunately AWK wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); AWK investors were disappointed as the stock returned 4.1% since the end of September (through 12/18) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

Follow American Water Works Company Inc. (NYSE:AWK)

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