Hedge Funds Are Cashing Out Of Flowserve Corporation (FLS)

In this article we are going to use hedge fund sentiment as a tool and determine whether Flowserve Corporation (NYSE:FLS) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Flowserve Corporation (NYSE:FLS) has seen a decrease in hedge fund interest of late. Flowserve Corporation (NYSE:FLS) was in 27 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 32. Our calculations also showed that FLS isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 79 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

David E. Shaw of D.E. Shaw

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now we’re going to review the fresh hedge fund action surrounding Flowserve Corporation (NYSE:FLS).

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

At second quarter’s end, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards FLS over the last 24 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Flowserve Corporation (NYSE:FLS) was held by GAMCO Investors, which reported holding $63.7 million worth of stock at the end of June. It was followed by Greenhouse Funds with a $26.7 million position. Other investors bullish on the company included Millennium Management, D E Shaw, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Greenhouse Funds allocated the biggest weight to Flowserve Corporation (NYSE:FLS), around 2.33% of its 13F portfolio. Ratan Capital Group is also relatively very bullish on the stock, dishing out 0.99 percent of its 13F equity portfolio to FLS.

Because Flowserve Corporation (NYSE:FLS) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there is a sect of hedgies that slashed their positions entirely last quarter. It’s worth mentioning that Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management sold off the biggest stake of the 750 funds tracked by Insider Monkey, comprising an estimated $5.5 million in stock, and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners was right behind this move, as the fund said goodbye to about $2.4 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 2 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Flowserve Corporation (NYSE:FLS) but similarly valued. These stocks are Allegro MicroSystems, Inc. (NASDAQ:ALGM), 51job, Inc. (NASDAQ:JOBS), Virtu Financial Inc (NASDAQ:VIRT), nVent Electric plc (NYSE:NVT), JOYY Inc. (NASDAQ:YY), Hexcel Corporation (NYSE:HXL), and Progyny, Inc. (NASDAQ:PGNY). This group of stocks’ market valuations are similar to FLS’s market valuation.

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As you can see these stocks had an average of 24.6 hedge funds with bullish positions and the average amount invested in these stocks was $300 million. That figure was $234 million in FLS’s case. Progyny, Inc. (NASDAQ:PGNY) is the most popular stock in this table. On the other hand Allegro MicroSystems, Inc. (NASDAQ:ALGM) is the least popular one with only 17 bullish hedge fund positions. Flowserve Corporation (NYSE:FLS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for FLS is 51. 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 24.9% in 2021 through October 15th and beat the market again by 4.5 percentage points. Unfortunately FLS wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on FLS were disappointed as the stock returned -7.7% since the end of June (through 10/15) 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 many of these stocks already outperformed the market since 2019.

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

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