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Was The Smart Money Right About Piling Into Flex Ltd. (FLEX)?

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At Insider Monkey, we pore over the filings of nearly 887 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 December 31st. In this article, we will use that wealth of knowledge to determine whether or not Flex Ltd. (NASDAQ:FLEX) makes for a good investment right now.

Is Flex Ltd. (NASDAQ:FLEX) a bargain? Hedge funds were getting more optimistic. The number of bullish hedge fund positions rose by 17 lately. Flex Ltd. (NASDAQ:FLEX) was in 44 hedge funds' portfolios at the end of December. The all time high for this statistic was previously 34. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that FLEX isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 27 hedge funds in our database with FLEX holdings at the end of September.

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 S&P 500 ETFs by 124 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.

Scott Ferguson Sachem Head Capital
Scott Ferguson Sachem Head Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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. Now we're going to take a look at the new hedge fund action surrounding Flex Ltd. (NASDAQ:FLEX).

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

Heading into the first quarter of 2021, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 63% from the third quarter of 2020. On the other hand, there were a total of 34 hedge funds with a bullish position in FLEX a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Is FLEX A Good Stock To Buy?
Is FLEX A Good Stock To Buy?

The largest stake in Flex Ltd. (NASDAQ:FLEX) was held by Lyrical Asset Management, which reported holding $297.8 million worth of stock at the end of December. It was followed by Iridian Asset Management with a $253 million position. Other investors bullish on the company included Sachem Head Capital, Pzena Investment Management, and Shannon River Fund Management. In terms of the portfolio weights assigned to each position Nishkama Capital allocated the biggest weight to Flex Ltd. (NASDAQ:FLEX), around 10.6% of its 13F portfolio. Shannon River Fund Management is also relatively very bullish on the stock, designating 7.85 percent of its 13F equity portfolio to FLEX.

As one would reasonably expect, key hedge funds have jumped into Flex Ltd. (NASDAQ:FLEX) headfirst. Park West Asset Management, managed by Peter S. Park, assembled the largest position in Flex Ltd. (NASDAQ:FLEX). Park West Asset Management had $52.7 million invested in the company at the end of the quarter. Josh Resnick's Jericho Capital Asset Management also initiated a $46.9 million position during the quarter. The following funds were also among the new FLEX investors: Mark Kingdon's Kingdon Capital, Michael A. Price and Amos Meron's Empyrean Capital Partners, and Suraj Parkash Chopra's Force Hill Capital Management.

Let's go over hedge fund activity in other stocks similar to Flex Ltd. (NASDAQ:FLEX). These stocks are Newell Brands Inc. (NYSE:NWL), Pinnacle West Capital Corporation (NYSE:PNW), WEX Inc (NYSE:WEX), Store Capital Corporation (NYSE:STOR), Neurocrine Biosciences, Inc. (NASDAQ:NBIX), Ascendis Pharma A/S (NASDAQ:ASND), and AMERCO (NASDAQ:UHAL). This group of stocks' market caps are closest to FLEX's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NWL,23,1529633,-4 PNW,24,331462,2 WEX,26,422739,0 STOR,12,862680,-8 NBIX,31,936476,-7 ASND,31,2830045,2 UHAL,21,540146,2 Average,24,1064740,-1.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $1065 million. That figure was $1373 million in FLEX's case. Neurocrine Biosciences, Inc. (NASDAQ:NBIX) is the most popular stock in this table. On the other hand Store Capital Corporation (NYSE:STOR) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Flex Ltd. (NASDAQ:FLEX) is more popular among hedge funds. Our overall hedge fund sentiment score for FLEX is 90. 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. Unfortunately FLEX wasn't nearly as popular as these 10 stocks and hedge funds that were betting on FLEX were disappointed as the stock returned -3.2% since the end of the fourth quarter (through 4/30) 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 most of these stocks already outperformed the market since 2019.

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

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