Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Flowers Foods, Inc. (NYSE:FLO).
Is Flowers Foods, Inc. (NYSE:FLO) undervalued? Hedge funds are betting on the stock. The number of long hedge fund bets went up by 7 recently. Our calculations also showed that FLO isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). Video: Watch our video about the top 5 most popular hedge fund stocks.
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 58 percentage points since March 2017 (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. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_758429" align="aligncenter" width="400"] Ric Dillon of Diamond Hill Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to check out the fresh hedge fund action surrounding Flowers Foods, Inc. (NYSE:FLO).
Hedge fund activity in Flowers Foods, Inc. (NYSE:FLO)
Heading into the second quarter of 2020, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 35% from the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in FLO a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Renaissance Technologies has the largest position in Flowers Foods, Inc. (NYSE:FLO), worth close to $97.4 million, corresponding to 0.1% of its total 13F portfolio. Sitting at the No. 2 spot is Diamond Hill Capital, led by Ric Dillon, holding a $53.5 million position; 0.4% of its 13F portfolio is allocated to the stock. Remaining peers that are bullish include Cliff Asness's AQR Capital Management, Mario Gabelli's GAMCO Investors and Lee Ainslie's Maverick Capital. In terms of the portfolio weights assigned to each position Diamond Hill Capital allocated the biggest weight to Flowers Foods, Inc. (NYSE:FLO), around 0.36% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, designating 0.23 percent of its 13F equity portfolio to FLO.
Consequently, some big names were breaking ground themselves. Winton Capital Management, managed by David Harding, initiated the most valuable position in Flowers Foods, Inc. (NYSE:FLO). Winton Capital Management had $1.7 million invested in the company at the end of the quarter. Greg Eisner's Engineers Gate Manager also initiated a $1.6 million position during the quarter. The other funds with brand new FLO positions are Paul Tudor Jones's Tudor Investment Corp, Philippe Laffont's Coatue Management, and Ryan Tolkin (CIO)'s Schonfeld Strategic Advisors.
Let's check out hedge fund activity in other stocks similar to Flowers Foods, Inc. (NYSE:FLO). We will take a look at National Instruments Corporation (NASDAQ:NATI), MDU Resources Group Inc (NYSE:MDU), Science Applications International Corp (NYSE:SAIC), and JOYY Inc. (NASDAQ:YY). This group of stocks' market valuations resemble FLO's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NATI,29,706256,-1 MDU,25,183156,-5 SAIC,34,371964,7 YY,15,209246,-8 Average,25.75,367656,-1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $368 million. That figure was $228 million in FLO's case. Science Applications International Corp (NYSE:SAIC) is the most popular stock in this table. On the other hand JOYY Inc. (NASDAQ:YY) is the least popular one with only 15 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May but beat the market by 13.2 percentage points. Unfortunately FLO wasn't nearly as popular as these 10 stocks and hedge funds that were betting on FLO were disappointed as the stock returned 15% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 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.