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Is Middlesex Water Company (MSEX) A Good Stock To Buy?

We at Insider Monkey have gone over 752 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of September 30th. In this article, we look at what those funds think of Middlesex Water Company (NASDAQ:MSEX) based on that data.

Middlesex Water Company (NASDAQ:MSEX) investors should be aware of an increase in support from the world’s most elite money managers recently. Our calculations also showed that MSEX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.

Mario Gabelli of GAMCO Investors

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to analyze the fresh hedge fund action surrounding Middlesex Water Company (NASDAQ:MSEX).

What does smart money think about Middlesex Water Company (NASDAQ:MSEX)?

At the end of the third quarter, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 11% from one quarter earlier. By comparison, 9 hedge funds held shares or bullish call options in MSEX a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, Renaissance Technologies holds the biggest position in Middlesex Water Company (NASDAQ:MSEX). Renaissance Technologies has a $36.9 million position in the stock, comprising less than 0.1%% of its 13F portfolio. The second most bullish fund manager is Ian Simm of Impax Asset Management, with a $8.5 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining peers that hold long positions contain Mario Gabelli’s GAMCO Investors, Cliff Asness’s AQR Capital Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Impax Asset Management allocated the biggest weight to Middlesex Water Company (NASDAQ:MSEX), around 0.11% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, dishing out 0.03 percent of its 13F equity portfolio to MSEX.

As one would reasonably expect, specific money managers have been driving this bullishness. Paloma Partners, managed by Donald Sussman, initiated the most outsized position in Middlesex Water Company (NASDAQ:MSEX). Paloma Partners had $0.4 million invested in the company at the end of the quarter. Andrew Weiss’s Weiss Asset Management also made a $0.3 million investment in the stock during the quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Middlesex Water Company (NASDAQ:MSEX) but similarly valued. We will take a look at Standard Motor Products, Inc. (NYSE:SMP), Natus Medical Incorporated (NASDAQ:NTUS), Kenon Holdings Ltd. (NYSE:KEN), and Enviva Partners, LP (NYSE:EVA). This group of stocks’ market valuations resemble MSEX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SMP 13 111656 2
NTUS 21 82632 -1
KEN 1 1950 0
EVA 4 92763 -3
Average 9.75 72250 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.75 hedge funds with bullish positions and the average amount invested in these stocks was $72 million. That figure was $54 million in MSEX’s case. Natus Medical Incorporated (NASDAQ:NTUS) is the most popular stock in this table. On the other hand Kenon Holdings Ltd. (NYSE:KEN) is the least popular one with only 1 bullish hedge fund positions. Middlesex Water Company (NASDAQ:MSEX) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately MSEX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MSEX were disappointed as the stock returned -2.9% during the fourth quarter (through the end of November) 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 this year.

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

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