Is Flowserve Corporation (FLS) Going to Burn These Hedge Funds?

Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.6% in 2019 (through the end of November) and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Is Flowserve Corporation (NYSE:FLS) a splendid investment today? The best stock pickers are becoming less confident. The number of bullish hedge fund bets went down by 7 lately. Our calculations also showed that FLS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

To most investors, hedge funds are viewed as underperforming, outdated financial vehicles of years past. While there are more than 8000 funds trading today, We hone in on the elite of this club, around 750 funds. These hedge fund managers handle the lion’s share of the hedge fund industry’s total asset base, and by keeping an eye on their highest performing equity investments, Insider Monkey has discovered many investment strategies that have historically exceeded the market. Insider Monkey’s flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points annually since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Mario Gabelli of GAMCO Investors

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a glance at the recent hedge fund action surrounding Flowserve Corporation (NYSE:FLS).

What does smart money think about Flowserve Corporation (NYSE:FLS)?

Heading into the fourth quarter of 2019, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -27% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in FLS over the last 17 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

The largest stake in Flowserve Corporation (NYSE:FLS) was held by GAMCO Investors, which reported holding $109.1 million worth of stock at the end of September. It was followed by Impax Asset Management with a $60.7 million position. Other investors bullish on the company included AQR Capital Management, Citadel Investment Group, and Interval Partners. In terms of the portfolio weights assigned to each position GAMCO Investors allocated the biggest weight to Flowserve Corporation (NYSE:FLS), around 0.91% of its 13F portfolio. Impax Asset Management is also relatively very bullish on the stock, dishing out 0.79 percent of its 13F equity portfolio to FLS.

Judging by the fact that Flowserve Corporation (NYSE:FLS) has experienced falling interest from the aggregate hedge fund industry, we can see that there is a sect of hedge funds that decided to sell off their positions entirely by the end of the third quarter. It’s worth mentioning that Renaissance Technologies said goodbye to the biggest stake of all the hedgies watched by Insider Monkey, totaling an estimated $31 million in stock, and Dmitry Balyasny’s Balyasny Asset Management was right behind this move, as the fund said goodbye to about $14.9 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 7 funds by the end of the third quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Flowserve Corporation (NYSE:FLS) but similarly valued. These stocks are Sabre Corporation (NASDAQ:SABR), First Solar, Inc. (NASDAQ:FSLR), Ciena Corporation (NYSE:CIEN), and Anaplan, Inc. (NYSE:PLAN). All of these stocks’ market caps are closest to FLS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SABR 25 224467 13
FSLR 30 347342 6
CIEN 29 489215 -7
PLAN 42 2009371 5
Average 31.5 767599 4.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 31.5 hedge funds with bullish positions and the average amount invested in these stocks was $768 million. That figure was $226 million in FLS’s case. Anaplan, Inc. (NYSE:PLAN) is the most popular stock in this table. On the other hand Sabre Corporation (NASDAQ:SABR) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Flowserve Corporation (NYSE:FLS) is even less popular than SABR. Hedge funds dodged a bullet by taking a bearish stance towards FLS. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately FLS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); FLS investors were disappointed as the stock returned 4.3% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market so far in Q4.

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