Should You Avoid Xylem Inc (XYL)?

At Insider Monkey, we pore over the filings of more than 700 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of September 30. In this article, we will use that wealth of knowledge to determine whether or not Xylem Inc (NYSE:XYL) makes for a good investment right now.

Is Xylem Inc (NYSE:XYL) a buy right now? The best stock pickers are in a bearish mood. The number of long hedge fund bets shrunk by 1 lately. Our calculations also showed that XYL isn’t among the 30 most popular stocks among hedge funds.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 6.3% year to date (through December 3rd) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 18 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

GAMCO Investors, Mario Gabelli

Let’s take a peek at the latest hedge fund action encompassing Xylem Inc (NYSE:XYL).

What does the smart money think about Xylem Inc (NYSE:XYL)?

Heading into the fourth quarter of 2018, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in XYL over the last 13 quarters. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were upping their stakes significantly (or already accumulated large positions).


When looking at the institutional investors followed by Insider Monkey, Impax Asset Management, managed by Ian Simm, holds the largest position in Xylem Inc (NYSE:XYL). Impax Asset Management has a $289.4 million position in the stock, comprising 4.2% of its 13F portfolio. The second largest stake is held by GAMCO Investors, led by Mario Gabelli, holding a $166.5 million position; 1.1% of its 13F portfolio is allocated to the company. Some other professional money managers that are bullish comprise Richard Chilton’s Chilton Investment Company, Brad Dunkley and Blair Levinsky’s Waratah Capital Advisors and Alexander Mitchell’s Scopus Asset Management.

Due to the fact that Xylem Inc (NYSE:XYL) has faced a decline in interest from hedge fund managers, it’s easy to see that there exists a select few money managers that elected to cut their positions entirely last quarter. Intriguingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital cut the largest position of the 700 funds watched by Insider Monkey, valued at an estimated $53.1 million in stock. Jim Simons’s fund, Renaissance Technologies, also dumped its stock, about $29.8 million worth. These moves are interesting, as aggregate hedge fund interest fell by 1 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Xylem Inc (NYSE:XYL). These stocks are TechnipFMC plc (NYSE:FTI), Nasdaq, Inc. (NASDAQ:NDAQ), Apollo Global Management LLC (NYSE:APO), and Vornado Realty Trust (NYSE:VNO). This group of stocks’ market caps resemble XYL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FTI 23 526729 -3
NDAQ 20 309953 2
APO 22 1524416 3
VNO 25 481421 -1
Average 22.5 710630 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $711 million. That figure was $617 million in XYL’s case. Vornado Realty Trust (NYSE:VNO) is the most popular stock in this table. On the other hand Nasdaq, Inc. (NASDAQ:NDAQ) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Xylem Inc (NYSE:XYL) is even less popular than NDAQ. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.

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