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Were Hedge Funds Right About Dumping SPX FLOW, Inc. (FLOW)?

As we already know from media reports and hedge fund investor letters, hedge funds delivered their best returns in a decade. Most investors who decided to stick with hedge funds after a rough 2018 recouped their losses by the end of the second quarter. We get to see hedge funds’ thoughts towards the market and individual stocks by aggregating their quarterly portfolio movements and reading their investor letters. In this article, we will particularly take a look at what hedge funds think about SPX FLOW, Inc. (NYSE:FLOW).

SPX FLOW, Inc. (NYSE:FLOW) has experienced a decrease in hedge fund interest in recent months. Our calculations also showed that FLOW isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are numerous formulas shareholders have at their disposal to grade publicly traded companies. A couple of the most under-the-radar formulas are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the best picks of the top hedge fund managers can outperform the broader indices by a significant amount (see the details here).

Noam Gottesman GLG Partners

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s go over the key hedge fund action surrounding SPX FLOW, Inc. (NYSE:FLOW).

What have hedge funds been doing with SPX FLOW, Inc. (NYSE:FLOW)?

At the end of the second quarter, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in FLOW a year ago. With hedge funds’ capital changing hands, there exists a few notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

No of Hedge Funds with FLOW Positions

Of the funds tracked by Insider Monkey, Impax Asset Management, managed by Ian Simm, holds the number one position in SPX FLOW, Inc. (NYSE:FLOW). Impax Asset Management has a $77.6 million position in the stock, comprising 1% of its 13F portfolio. The second largest stake is held by Diamond Hill Capital, managed by Ric Dillon, which holds a $46.2 million position; the fund has 0.2% of its 13F portfolio invested in the stock. Some other members of the smart money that are bullish consist of D. E. Shaw’s D E Shaw, Peter Schliemann’s Rutabaga Capital Management and Noam Gottesman’s GLG Partners.

Because SPX FLOW, Inc. (NYSE:FLOW) has witnessed bearish sentiment from the smart money, it’s safe to say that there were a few hedgies who sold off their full holdings by the end of the second quarter. At the top of the heap, Israel Englander’s Millennium Management sold off the biggest position of the “upper crust” of funds followed by Insider Monkey, totaling an estimated $5.8 million in stock. Paul Marshall and Ian Wace’s fund, Marshall Wace LLP, also cut its stock, about $3.2 million worth. These transactions are important to note, as total hedge fund interest dropped by 4 funds by the end of the second quarter.

Let’s also examine hedge fund activity in other stocks similar to SPX FLOW, Inc. (NYSE:FLOW). We will take a look at Cision Ltd. (NYSE:CISN), Saia Inc (NASDAQ:SAIA), Alexander & Baldwin Inc (NYSE:ALEX), and WestAmerica Bancorporation (NASDAQ:WABC). This group of stocks’ market caps are closest to FLOW’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CISN 21 102631 4
SAIA 9 63027 -5
ALEX 10 24038 5
WABC 10 19455 4
Average 12.5 52288 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $52 million. That figure was $181 million in FLOW’s case. Cision Ltd. (NYSE:CISN) is the most popular stock in this table. On the other hand Saia Inc (NASDAQ:SAIA) is the least popular one with only 9 bullish hedge fund positions. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately FLOW wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on FLOW were disappointed as the stock returned -5.7% during the third quarter 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 many of these stocks already outperformed the market so far this year.

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

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