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Is Badger Meter, Inc. (BMI) Going To Burn These Hedge Funds ?

“Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn’t by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today’s darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn’t attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal,” said Vilas Fund in its Q1 investor letter. We aren’t sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Badger Meter, Inc. (NYSE:BMI).

Is Badger Meter, Inc. (NYSE:BMI) the right pick for your portfolio? Investors who are in the know are selling. The number of long hedge fund positions were trimmed by 2 in recent months. Our calculations also showed that BMI isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

GOTHAM ASSET MANAGEMENT

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to take a look at the recent hedge fund action encompassing Badger Meter, Inc. (NYSE:BMI).

Hedge fund activity in Badger Meter, Inc. (NYSE:BMI)

Heading into the third quarter of 2019, a total of 12 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -14% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in BMI over the last 16 quarters. With the smart money’s sentiment swirling, there exists a few notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

No of Hedge Funds with BMI Positions

The largest stake in Badger Meter, Inc. (NYSE:BMI) was held by Impax Asset Management, which reported holding $80.1 million worth of stock at the end of March. It was followed by Royce & Associates with a $14.7 million position. Other investors bullish on the company included GAMCO Investors, Citadel Investment Group, and Gotham Asset Management.

Since Badger Meter, Inc. (NYSE:BMI) has faced a decline in interest from hedge fund managers, it’s easy to see that there were a few funds who sold off their entire stakes last quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital cut the largest position of all the hedgies watched by Insider Monkey, comprising about $2.7 million in stock, and Benjamin A. Smith’s Laurion Capital Management was right behind this move, as the fund said goodbye to about $0.6 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest was cut by 2 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Badger Meter, Inc. (NYSE:BMI). These stocks are Dine Brands Global, Inc. (NYSE:DIN), Horace Mann Educators Corporation (NYSE:HMN), Liberty Oilfield Services Inc. (NYSE:LBRT), and Audentes Therapeutics, Inc. (NASDAQ:BOLD). This group of stocks’ market caps resemble BMI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DIN 15 159846 -5
HMN 12 30864 -2
LBRT 7 68055 -7
BOLD 27 643203 1
Average 15.25 225492 -3.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $225 million. That figure was $114 million in BMI’s case. Audentes Therapeutics, Inc. (NASDAQ:BOLD) is the most popular stock in this table. On the other hand Liberty Oilfield Services Inc. (NYSE:LBRT) is the least popular one with only 7 bullish hedge fund positions. Badger Meter, Inc. (NYSE:BMI) is not the least popular stock in this group but hedge fund interest is still below average. 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately BMI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); BMI investors were disappointed as the stock returned -9.7% during the third quarter 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 many of these stocks already outperformed the market so far in 2019.

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

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