Mueller Water Products, Inc. (MWA): Hedge Funds In Wait-and-See Mode

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 Mueller Water Products, Inc. (NYSE:MWA).

Mueller Water Products, Inc. (NYSE:MWA) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 20 hedge funds’ portfolios at the end of the first quarter of 2021. Our calculations also showed that MWA isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). At the end of this article we will also compare MWA to other stocks including Glu Mobile Inc. (NASDAQ:GLUU), ThredUp Inc. (NASDAQ:TDUP), and Monro Inc (NASDAQ:MNRO) to get a better sense of its popularity.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Donald Sussman Paloma Partners

Donald Sussman of Paloma Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 homepage. Keeping this in mind we’re going to take a gander at the new hedge fund action surrounding Mueller Water Products, Inc. (NYSE:MWA).

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

At first quarter’s end, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MWA over the last 23 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

The largest stake in Mueller Water Products, Inc. (NYSE:MWA) was held by Impax Asset Management, which reported holding $168 million worth of stock at the end of December. It was followed by GAMCO Investors with a $57.7 million position. Other investors bullish on the company included Millennium Management, Arrowstreet Capital, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Impax Asset Management allocated the biggest weight to Mueller Water Products, Inc. (NYSE:MWA), around 0.86% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, earmarking 0.51 percent of its 13F equity portfolio to MWA.

Because Mueller Water Products, Inc. (NYSE:MWA) has faced bearish sentiment from hedge fund managers, we can see that there lies a certain “tier” of fund managers that slashed their positions entirely last quarter. Interestingly, Jeffrey Bronchick’s Cove Street Capital dropped the biggest stake of the “upper crust” of funds monitored by Insider Monkey, totaling an estimated $1.2 million in stock. Matthew Hulsizer’s fund, PEAK6 Capital Management, also said goodbye to its stock, about $0.2 million worth. These moves are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks similar to Mueller Water Products, Inc. (NYSE:MWA). We will take a look at Glu Mobile Inc. (NASDAQ:GLUU), ThredUp Inc. (NASDAQ:TDUP), Monro Inc (NASDAQ:MNRO), Coeur Mining, Inc. (NYSE:CDE), Prestige Consumer Healthcare Inc. (NYSE:PBH), Verra Mobility Corporation (NASDAQ:VRRM), and Mednax Inc. (NYSE:MD). This group of stocks’ market valuations resemble MWA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
GLUU 34 414801 4
TDUP 12 256960 12
MNRO 12 25189 2
CDE 18 45885 1
PBH 14 104765 0
VRRM 18 337812 -4
MD 11 260855 -7
Average 17 206610 1.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $207 million. That figure was $289 million in MWA’s case. Glu Mobile Inc. (NASDAQ:GLUU) is the most popular stock in this table. On the other hand Mednax Inc. (NYSE:MD) is the least popular one with only 11 bullish hedge fund positions. Mueller Water Products, Inc. (NYSE:MWA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MWA is 48.6. 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 positive signal but 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 23.8% in 2021 through July 16th and beat the market again by 7.7 percentage points. Unfortunately MWA wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on MWA were disappointed as the stock returned 5.6% since the end of March (through 7/16) 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 many of these stocks already outperformed the market since 2019.

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