Were Hedge Funds Right About Flowers Foods, Inc. (FLO)?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Flowers Foods, Inc. (NYSE:FLO) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Is Flowers Foods, Inc. (NYSE:FLO) ready to rally soon? Money managers were taking a bullish view. The number of bullish hedge fund bets rose by 7 lately. Our calculations also showed that FLO 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). FLO was in 27 hedge funds’ portfolios at the end of the first quarter of 2020. There were 20 hedge funds in our database with FLO positions at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ric Dillon Diamond Hill Capital

Ric Dillon of Diamond Hill Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. 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 we’re going to go over the latest hedge fund action regarding Flowers Foods, Inc. (NYSE:FLO).

How are hedge funds trading Flowers Foods, Inc. (NYSE:FLO)?

At the end of the first quarter, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 35% from the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in FLO a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Flowers Foods, Inc. (NYSE:FLO) was held by Renaissance Technologies, which reported holding $97.4 million worth of stock at the end of September. It was followed by Diamond Hill Capital with a $53.5 million position. Other investors bullish on the company included AQR Capital Management, GAMCO Investors, and Maverick Capital. In terms of the portfolio weights assigned to each position Diamond Hill Capital allocated the biggest weight to Flowers Foods, Inc. (NYSE:FLO), around 0.36% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, earmarking 0.23 percent of its 13F equity portfolio to FLO.

As one would reasonably expect, key hedge funds were breaking ground themselves. Winton Capital Management, managed by David Harding, established the largest position in Flowers Foods, Inc. (NYSE:FLO). Winton Capital Management had $1.7 million invested in the company at the end of the quarter. Greg Eisner’s Engineers Gate Manager also initiated a $1.6 million position during the quarter. The following funds were also among the new FLO investors: Paul Tudor Jones’s Tudor Investment Corp, Philippe Laffont’s Coatue Management, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Flowers Foods, Inc. (NYSE:FLO) but similarly valued. These stocks are National Instruments Corporation (NASDAQ:NATI), MDU Resources Group Inc (NYSE:MDU), Science Applications International Corp (NYSE:SAIC), and JOYY Inc. (NASDAQ:YY). This group of stocks’ market values resemble FLO’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NATI 29 706256 -1
MDU 25 183156 -5
SAIC 34 371964 7
YY 15 209246 -8
Average 25.75 367656 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $368 million. That figure was $228 million in FLO’s case. Science Applications International Corp (NYSE:SAIC) is the most popular stock in this table. On the other hand JOYY Inc. (NASDAQ:YY) is the least popular one with only 15 bullish hedge fund positions. Flowers Foods, Inc. (NYSE:FLO) 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 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 beat the market by 15.5 percentage points. Unfortunately FLO wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on FLO were disappointed as the stock returned 9.9% during the same time period 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 many of these stocks already outperformed the market so far this year.

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