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Did Hedge Funds Make The Right Call On Flex Ltd. (FLEX)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Flex Ltd. (NASDAQ:FLEX) based on that data and determine whether they were really smart about the stock.

Flex Ltd. (NASDAQ:FLEX) has experienced a decrease in activity from the world’s largest hedge funds in recent months. Our calculations also showed that FLEX 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.

At the moment there are plenty of gauges market participants put to use to appraise publicly traded companies. Two of the most under-the-radar gauges are hedge fund and insider trading sentiment. We have shown that, historically, those who follow the best picks of the top investment managers can beat the S&P 500 by a solid amount (see the details here).

Scott Ferguson Sachem Head Capital

Scott Ferguson of Sachem Head Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. With all of this in mind let’s take a gander at the recent hedge fund action encompassing Flex Ltd. (NASDAQ:FLEX).

How are hedge funds trading Flex Ltd. (NASDAQ:FLEX)?

Heading into the second quarter of 2020, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -29% from the fourth quarter of 2019. On the other hand, there were a total of 27 hedge funds with a bullish position in FLEX a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Iridian Asset Management held the most valuable stake in Flex Ltd. (NASDAQ:FLEX), which was worth $158.8 million at the end of the third quarter. On the second spot was Lyrical Asset Management which amassed $139.7 million worth of shares. Pzena Investment Management, Glenview Capital, and Sachem Head 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 Shannon River Fund Management allocated the biggest weight to Flex Ltd. (NASDAQ:FLEX), around 6.33% of its 13F portfolio. Sachem Head Capital is also relatively very bullish on the stock, earmarking 5.86 percent of its 13F equity portfolio to FLEX.

Because Flex Ltd. (NASDAQ:FLEX) has witnessed declining sentiment from the smart money, logic holds that there is a sect of hedge funds that decided to sell off their full holdings heading into Q4. Intriguingly, Renaissance Technologies cut the biggest investment of all the hedgies watched by Insider Monkey, comprising an estimated $19.8 million in stock. Anand Parekh’s fund, Alyeska Investment Group, also dropped its stock, about $16.4 million worth. These moves are important to note, as total hedge fund interest fell by 10 funds heading into Q4.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Flex Ltd. (NASDAQ:FLEX) but similarly valued. These stocks are First Industrial Realty Trust, Inc. (NYSE:FR), Planet Fitness Inc (NYSE:PLNT), Axon Enterprise, Inc. (NASDAQ:AAXN), and Owens Corning (NYSE:OC). This group of stocks’ market valuations are closest to FLEX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FR 24 215043 5
PLNT 44 804544 10
AAXN 26 413473 1
OC 30 398573 -17
Average 31 457908 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 31 hedge funds with bullish positions and the average amount invested in these stocks was $458 million. That figure was $801 million in FLEX’s case. Planet Fitness Inc (NYSE:PLNT) is the most popular stock in this table. On the other hand First Industrial Realty Trust, Inc. (NYSE:FR) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks Flex Ltd. (NASDAQ:FLEX) is even less popular than FR. 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 12.3% in 2020 through June 30th but managed to beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on FLEX, though not to the same extent, as the stock returned 22.3% during the second quarter and outperformed the market as well.

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