Hedge Funds Are Buying Flexsteel Industries, Inc. (FLXS)

Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Flexsteel Industries, Inc. (NASDAQ:FLXS).

Is Flexsteel Industries, Inc. (NASDAQ:FLXS) a marvelous investment now? The smart money is indeed becoming more confident. The number of long hedge fund bets moved up by 2 lately. FLXS was in 8 hedge funds’ portfolios at the end of September. There were 6 hedge funds in our database with FLXS holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as First Bancorp (NASDAQ:FBNC), Whitestone REIT (NYSE:WSR), and NanoString Technologies Inc (NASDAQ:NSTG) to gather more data points.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

What does the smart money think about Flexsteel Industries, Inc. (NASDAQ:FLXS)?

At the end of the third quarter, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, up by 33% from the previous quarter. On the other hand, there were a total of 6 hedge funds with a bullish position in FLXS at the beginning of this year. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Chuck Royce’s Royce & Associates has the biggest position in Flexsteel Industries, Inc. (NASDAQ:FLXS), worth close to $55.7 million. On Royce & Associates’s heels is Peter Algert and Kevin Coldiron of Algert Coldiron Investors, with a $1.5 million position. Some other peers that hold long positions contain John Overdeck and David Siegel’s Two Sigma Advisors and Cliff Asness’ AQR Capital Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

As one would reasonably expect, some big names were breaking ground themselves. Renaissance Technologies, one of the largest hedge funds in the world,established the most outsized position in Flexsteel Industries, Inc. (NASDAQ:FLXS). Renaissance Technologies had $1.4 million invested in the company at the end of the quarter. Mike Vranos’ Ellington also initiated a $0.2 million position during the quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Flexsteel Industries, Inc. (NASDAQ:FLXS). These stocks are First Bancorp (NASDAQ:FBNC), Whitestone REIT (NYSE:WSR), NanoString Technologies Inc (NASDAQ:NSTG), and DICE HOLDINGS, INC. (NYSE:DHX). This group of stocks’ market valuations are similar to FLXS’s market valuation.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $42 million. That figure was $60 million in FLXS’s case. NanoString Technologies Inc (NASDAQ:NSTG) is the most popular stock in this table. On the other hand Whitestone REIT (NYSE:WSR) is the least popular one with only 7 bullish hedge fund positions. Flexsteel Industries, Inc. (NASDAQ:FLXS) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. In this regard NSTG might be a better candidate to consider taking a long position in.

Disclosure: None