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Should You Buy SPX Flow Inc (FLOW)?

The equity market returns were very disappointing in the third quarter, “thanks” to the slowdown of China’s economy and the weaker-than-expected U.S. economic data. It was not entirely clear whether the broader market sell-off made U.S. equity valuations undervalued, but it definitely made them more attractive. It is worth mentioning that Russell 2000 ETF (IWM) underperformed the broad-market S&P 500 ETF by more than 14 percentage points during the period of June 25, 2015 through October 30, 2015. This clearly points to the fact that most investors, including hedge fund firms and institutional investors, heavily cut their exposure to high-potential (but seemingly riskier) small-cap stocks during the bloody third quarter. So let’s take a glance at the smart money sentiment towards SPX Flow Inc (NYSE:FLOW) and see how it was affected.

SPX Flow Inc (NYSE:FLOW) started trading in the second quarter and managed to gain some attention from large money managers. The company was included in 24 hedge funds’ portfolios at the end of September. At the end of this article we will also compare FLOW to other stocks, including Ophthotech Corp (NASDAQ:OPHT), and Gamco Investors Inc. (NYSE:GBL) to get a better sense of its popularity.

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To most traders, hedge funds are assumed to be underperforming, outdated financial tools of years past. While there are more than 8000 funds trading today, Our researchers choose to focus on the masters of this group, approximately 700 funds. It is estimated that this group of investors orchestrate most of all hedge funds’ total capital, and by keeping track of their highest performing investments, Insider Monkey has brought to light several investment strategies that have historically outpaced the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy defeated the S&P 500 index by 12 percentage points annually for a decade in their back tests.

With all of this in mind, let’s go over the new action surrounding SPX Flow Inc (NYSE:FLOW).

What does the smart money think about SPX Flow Inc (NYSE:FLOW)?

Of the funds tracked by Insider Monkey, Steve Cohen’s Point72 Asset Management established largest position in SPX Flow Inc (NYSE:FLOW), worth close to $31.5 million, accounting for 0.2% of its total 13F portfolio. The second largest stake is held by Relational Investors, holding a $30 million position; the fund has 3.6% of its 13F portfolio invested in the stock. The remaining members of the smart money with similar optimism consist of Israel Englander’s Millennium Management, Ken Griffin’s Citadel Investment Group and John A. Levin’s Levin Capital Strategies.

Let’s go over hedge fund activity in other stocks similar to SPX Flow Inc (NYSE:FLOW). These stocks are Ophthotech Corp (NASDAQ:OPHT), Gamco Investors Inc. (NYSE:GBL), and Intra-Cellular Therapies Inc (NASDAQ:ITCI). This group of stocks’ market valuations are closest to FLOW’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OPHT 18 270288 -1
GBL 11 27425 2
ITCI 26 320207 12

As you can see these stocks had an average of 18 hedge funds with bullish positions and the average amount invested in these stocks was $180 million, compared to $172 million in FLOW’s case. Intra-Cellular Therapies Inc (NASDAQ:ITCI) is the most popular stock in this table with 26 funds reporting stakes. On the other hand, SPX Flow Inc (NYSE:FLOW) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal, but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard ITCI might be a better candidate to consider a long position.

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