Is SPX FLOW, Inc. (NYSE:FLOW) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is SPX FLOW, Inc. (NYSE:FLOW) a buy here? The smart money is becoming less hopeful. The number of bullish hedge fund bets decreased by 4 in recent months. Our calculations also showed that FLOW isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). FLOW was in 12 hedge funds' portfolios at the end of September. There were 16 hedge funds in our database with FLOW 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.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_758429" align="aligncenter" width="450"] Ric Dillon of Diamond Hill Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We're going to review the fresh hedge fund action surrounding SPX FLOW, Inc. (NYSE:FLOW).
Hedge fund activity in SPX FLOW, Inc. (NYSE:FLOW)
At Q3's end, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FLOW over the last 17 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
Among these funds, Impax Asset Management held the most valuable stake in SPX FLOW, Inc. (NYSE:FLOW), which was worth $76.5 million at the end of the third quarter. On the second spot was Diamond Hill Capital which amassed $43.4 million worth of shares. Rutabaga Capital Management, D E Shaw, and Spitfire Capital 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 Spitfire Capital allocated the biggest weight to SPX FLOW, Inc. (NYSE:FLOW), around 7.81% of its 13F portfolio. Rutabaga Capital Management is also relatively very bullish on the stock, designating 2.84 percent of its 13F equity portfolio to FLOW.
Seeing as SPX FLOW, Inc. (NYSE:FLOW) has witnessed bearish sentiment from the smart money, it's safe to say that there is a sect of hedgies who sold off their full holdings in the third quarter. Interestingly, Noam Gottesman's GLG Partners cut the biggest investment of all the hedgies followed by Insider Monkey, worth about $9.3 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital was right behind this move, as the fund dropped about $3.1 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 4 funds in the third quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as SPX FLOW, Inc. (NYSE:FLOW) but similarly valued. We will take a look at Aircastle Limited (NYSE:AYR), Cardiovascular Systems Inc (NASDAQ:CSII), Merit Medical Systems, Inc. (NASDAQ:MMSI), and Cott Corporation (NYSE:COT). This group of stocks' market values resemble FLOW's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AYR,14,89197,2 CSII,15,126566,-2 MMSI,16,79954,-1 COT,26,587913,-1 Average,17.75,220908,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.75 hedge funds with bullish positions and the average amount invested in these stocks was $221 million. That figure was $153 million in FLOW's case. Cott Corporation (NYSE:COT) is the most popular stock in this table. On the other hand Aircastle Limited (NYSE:AYR) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks SPX FLOW, Inc. (NYSE:FLOW) is even less popular than AYR. Hedge funds clearly dropped the ball on FLOW as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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. A small number of hedge funds were also right about betting on FLOW as the stock returned 20.1% during the fourth quarter (through the end of November) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.