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Hedge Funds Have Never Been This Bullish On Franklin Electric Co., Inc. (FELE)

In this article we will take a look at whether hedge funds think Franklin Electric Co., Inc. (NASDAQ:FELE) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Franklin Electric Co., Inc. (NASDAQ:FELE) investors should pay attention to an increase in hedge fund interest lately. Our calculations also showed that FELE 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.

Mario Gabelli of GAMCO Investors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, we take a look at lists like the 10 best imported beer in 2020 to identify emerging trends that are likely to lead to 1000% gains in the coming years. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a look at the key hedge fund action surrounding Franklin Electric Co., Inc. (NASDAQ:FELE).

How have hedgies been trading Franklin Electric Co., Inc. (NASDAQ:FELE)?

At Q1’s end, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from the fourth quarter of 2019. Below, you can check out the change in hedge fund sentiment towards FELE over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Impax Asset Management held the most valuable stake in Franklin Electric Co., Inc. (NASDAQ:FELE), which was worth $128.1 million at the end of the third quarter. On the second spot was Royce & Associates which amassed $19 million worth of shares. GAMCO Investors, Citadel Investment Group, and Millennium Management 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 Impax Asset Management allocated the biggest weight to Franklin Electric Co., Inc. (NASDAQ:FELE), around 1.71% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, dishing out 1.09 percent of its 13F equity portfolio to FELE.

As industrywide interest jumped, key money managers have been driving this bullishness. Point72 Asset Management, managed by Steve Cohen, initiated the biggest position in Franklin Electric Co., Inc. (NASDAQ:FELE). Point72 Asset Management had $0.8 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also made a $0.3 million investment in the stock during the quarter. The following funds were also among the new FELE investors: Paul Marshall and Ian Wace’s Marshall Wace LLP and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s now review hedge fund activity in other stocks similar to Franklin Electric Co., Inc. (NASDAQ:FELE). We will take a look at Sprouts Farmers Market Inc (NASDAQ:SFM), Axsome Therapeutics, Inc. (NASDAQ:AXSM), MyoKardia, Inc. (NASDAQ:MYOK), and GrafTech International Ltd. (NYSE:EAF). All of these stocks’ market caps are closest to FELE’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SFM 30 312185 0
AXSM 24 457937 -1
MYOK 33 562366 7
EAF 23 126467 -10
Average 27.5 364739 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $365 million. That figure was $175 million in FELE’s case. MyoKardia, Inc. (NASDAQ:MYOK) is the most popular stock in this table. On the other hand GrafTech International Ltd. (NYSE:EAF) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks Franklin Electric Co., Inc. (NASDAQ:FELE) is even less popular than EAF. Hedge funds dodged a bullet by taking a bearish stance towards FELE. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.3% in 2020 through June 25th but managed to beat the market by 16.8 percentage points. Unfortunately FELE wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); FELE investors were disappointed as the stock returned 6.4% during the second quarter (through June 25th) 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 so far in 2020.

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

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