What Smart Money Thinks about Flowers Foods, Inc. (FLO)?

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. The Standard and Poor’s 500 Index returned 7.6% over the 12-month period ending November 21, while more than 51% of the constituents of the index underperformed the benchmark. Hence, a random stock picking process will most likely lead to disappointment. At the same time, the 30 most favored mid-cap stocks by the best performing hedge funds monitored by Insider Monkey generated a return of 18% over the same time span. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Flowers Foods, Inc. (NYSE:FLO) .

Flowers Foods, Inc. (NYSE:FLO) shareholders have witnessed a decrease in support from the world’s most successful money managers recently. At the end of September, the company was included in the 13F portfolios of 17 funds tracked by Insider Monkey, compared to 23 funds a quarter earlier. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Hexcel Corporation (NYSE:HXL), Companhia Brasileira de Distrib. (ADR) (NYSE:CBD), and DST Systems, Inc. (NYSE:DST) to gather more data points.

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At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

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Now, we’re going to review the new action regarding Flowers Foods, Inc. (NYSE:FLO).

Hedge fund activity in Flowers Foods, Inc. (NYSE:FLO)

Heading into the fourth quarter of 2016, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, down by 26% from the end of the second quarter of 2016. The graph below displays the number of hedge funds with bullish position in FLO over the last five quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Ric Dillon’s Diamond Hill Capital has the biggest position in Flowers Foods, Inc. (NYSE:FLO), worth close to $58.7 million, corresponding to 0.4% of its total 13F portfolio. The second largest stake is held by Israel Englander’s Millennium Management, with a $23.9 million position; less than 0.1% of its 13F portfolio is allocated to the stock. Some other peers that are bullish contain Mario Gabelli’s GAMCO Investors, Glenn Russell Dubin’s Highbridge Capital Management and Joel Greenblatt’s Gotham Asset Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Since Flowers Foods, Inc. (NYSE:FLO) has gone through declining sentiment from the aggregate hedge fund industry, we can see that there is a sect of funds who were dropping their positions entirely between July and September. Intriguingly, Greg Poole’s Echo Street Capital Management said goodbye to the largest investment of all the investors studied by Insider Monkey, worth about $21 million in stock. Jim Simons’ Renaissance Technologies, also dumped its stock, about $18.2 million worth.

Let’s also examine hedge fund activity in other stocks similar to Flowers Foods, Inc. (NYSE:FLO). These stocks are Hexcel Corporation (NYSE:HXL), Companhia Brasileira de Distrib. (ADR) (NYSE:CBD), DST Systems, Inc. (NYSE:DST), and Lazard Ltd (NYSE:LAZ). This group of stocks’ market caps match FLO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HXL 12 60634 0
CBD 6 37945 -1
DST 24 366216 6
LAZ 14 420808 -4

As you can see these stocks had an average of 14 hedge funds with bullish positions at the end of September and the average amount invested in these stocks was $221 million. That figure was $150 million in FLO’s case. DST Systems, Inc. (NYSE:DST) is the most popular stock in this table. On the other hand Companhia Brasileira de Distrib. (ADR) (NYSE:CBD) is the least popular one with only six 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. In this regard DST Systems, Inc. (NYSE:DST) might be a better candidate to consider taking a long position in.