Did The Smart Money Play Flex Ltd. (FLEX) Correctly?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 867 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of September 30th. Hedge funds’ consensus stock picks performed spectacularly over the last 3 years, but 2022 hasn’t been kind to hedge funds. In this article we look at how hedge funds traded Flex Ltd. (NASDAQ:FLEX) and determine whether the smart money was really smart about this stock.

Is Flex Ltd. (NASDAQ:FLEX) a good investment now? Hedge funds were taking a bearish view. The number of bullish hedge fund bets dropped by 8 recently. Flex Ltd. (NASDAQ:FLEX) was in 35 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 48. Our calculations also showed that FLEX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). There were 43 hedge funds in our database with FLEX positions at the end of the second quarter.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. With all of this in mind we’re going to take a look at the key hedge fund action surrounding Flex Ltd. (NASDAQ:FLEX).

Harold Levy of Iridian Asset Management

Do Hedge Funds Think FLEX Is A Good Stock To Buy Now?

Heading into the fourth quarter of 2021, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -19% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FLEX over the last 25 quarters. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

Among these funds, Lyrical Asset Management held the most valuable stake in Flex Ltd. (NASDAQ:FLEX), which was worth $256.6 million at the end of the third quarter. On the second spot was Sachem Head Capital which amassed $200.8 million worth of shares. Iridian Asset Management, Pzena Investment Management, and Shannon River Fund Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Nishkama Capital allocated the biggest weight to Flex Ltd. (NASDAQ:FLEX), around 12.39% of its 13F portfolio. Shannon River Fund Management is also relatively very bullish on the stock, dishing out 6.54 percent of its 13F equity portfolio to FLEX.

Seeing as Flex Ltd. (NASDAQ:FLEX) has faced declining sentiment from the smart money, logic holds that there was a specific group of money managers that elected to cut their full holdings by the end of the third quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital sold off the largest position of the 750 funds followed by Insider Monkey, comprising an estimated $44.7 million in stock. Renaissance Technologies, also cut its stock, about $34.6 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 8 funds by the end of the third quarter.

Let’s also examine hedge fund activity in other stocks similar to Flex Ltd. (NASDAQ:FLEX). These stocks are Ovintiv Inc. (NYSE:OVV), The Gap Inc. (NYSE:GPS), CRISPR Therapeutics AG (NASDAQ:CRSP), Jabil Inc. (NYSE:JBL), Vertiv Holdings Co (NYSE:VRT), Knight-Swift Transportation Holdings Inc. (NYSE:KNX), and Hyatt Hotels Corporation (NYSE:H). All of these stocks’ market caps are closest to FLEX’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.7 hedge funds with bullish positions and the average amount invested in these stocks was $695 million. That figure was $1149 million in FLEX’s case. Ovintiv Inc. (NYSE:OVV) is the most popular stock in this table. On the other hand Knight-Swift Transportation Holdings Inc. (NYSE:KNX) is the least popular one with only 21 bullish hedge fund positions. Flex Ltd. (NASDAQ:FLEX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FLEX is 49.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, FLEX wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on FLEX were disappointed as the stock returned -8.5% since the end of September (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.

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