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Hedge Funds Have Never Been This Bullish On Flowers Foods, Inc. (FLO)

Abigail Fisher

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren't usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index's returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you'd fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 8 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That's why we are going to go over recent hedge fund activity in Flowers Foods, Inc. (NYSE:FLO).

Is Flowers Foods, Inc. (NYSE:FLO) going to take off soon? The smart money is in a bullish mood. The number of long hedge fund positions rose by 6 lately. Our calculations also showed that FLO isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). FLO was in 28 hedge funds' portfolios at the end of September. There were 22 hedge funds in our database with FLO positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

In the 21st century investor’s toolkit there are a lot of indicators stock traders can use to assess stocks. Some of the less utilized indicators are hedge fund and insider trading signals. Our researchers have shown that, historically, those who follow the best picks of the best hedge fund managers can trounce the broader indices by a solid amount (see the details here).

[caption id="attachment_758429" align="aligncenter" width="450"] Ric Dillon of Diamond Hill Capital[/caption]

Ric Dillon Diamond Hill Capital

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a glance at the fresh hedge fund action encompassing Flowers Foods, Inc. (NYSE:FLO).

What does smart money think about Flowers Foods, Inc. (NYSE:FLO)?

Heading into the fourth quarter of 2019, a total of 28 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 27% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards FLO over the last 17 quarters. With the smart money's capital changing hands, there exists an "upper tier" of notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

FLO_dec2019

More specifically, Diamond Hill Capital was the largest shareholder of Flowers Foods, Inc. (NYSE:FLO), with a stake worth $70.8 million reported as of the end of September. Trailing Diamond Hill Capital was Renaissance Technologies, which amassed a stake valued at $56.1 million. GAMCO Investors, Millennium Management, and GLG Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Neo Ivy Capital allocated the biggest weight to Flowers Foods, Inc. (NYSE:FLO), around 0.42% of its portfolio. Diamond Hill Capital is also relatively very bullish on the stock, dishing out 0.38 percent of its 13F equity portfolio to FLO.

Now, key hedge funds have jumped into Flowers Foods, Inc. (NYSE:FLO) headfirst. Ellington, managed by Mike Vranos, created the most valuable position in Flowers Foods, Inc. (NYSE:FLO). Ellington had $1.5 million invested in the company at the end of the quarter. Joel Greenblatt's Gotham Asset Management also initiated a $0.8 million position during the quarter. The other funds with new positions in the stock are Renee Yao's Neo Ivy Capital, Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, and Donald Sussman's Paloma Partners.

Let's go over hedge fund activity in other stocks similar to Flowers Foods, Inc. (NYSE:FLO). These stocks are Generac Holdings Inc. (NYSE:GNRC), Teladoc Health Inc (NYSE:TDOC), JetBlue Airways Corporation (NASDAQ:JBLU), and Cimarex Energy Co (NYSE:XEC). This group of stocks' market values are closest to FLO's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GNRC,30,289728,5 TDOC,17,102048,-1 JBLU,23,646872,-4 XEC,31,926221,4 Average,25.25,491217,1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $491 million. That figure was $244 million in FLO's case. Cimarex Energy Co (NYSE:XEC) is the most popular stock in this table. On the other hand Teladoc Health Inc (NYSE:TDOC) is the least popular one with only 17 bullish hedge fund positions. Flowers Foods, Inc. (NYSE:FLO) 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 FLO wasn't nearly as popular as these 20 stocks and hedge funds that were betting on FLO were disappointed as the stock returned -6.1% 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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