Hedge Funds Are Selling Flowserve Corporation (FLS)

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Flowserve Corporation (NYSE:FLS).

Is Flowserve Corporation (NYSE:FLS) a buy, sell, or hold? The best stock pickers were becoming less hopeful. The number of long hedge fund bets shrunk by 6 in recent months. Flowserve Corporation (NYSE:FLS) was in 21 hedge funds’ portfolios at the end of the third 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).

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. Now let’s go over the new hedge fund action encompassing Flowserve Corporation (NYSE:FLS).

David E. Shaw of D.E. Shaw

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

Heading into the fourth quarter of 2021, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -22% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FLS over the last 25 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Among these funds, GAMCO Investors held the most valuable stake in Flowserve Corporation (NYSE:FLS), which was worth $54.1 million at the end of the third quarter. On the second spot was Millennium Management which amassed $38.4 million worth of shares. Greenhouse Funds, D E Shaw, and Two Sigma Advisors 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 Greenhouse Funds allocated the biggest weight to Flowserve Corporation (NYSE:FLS), around 2.43% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, dishing out 0.48 percent of its 13F equity portfolio to FLS.

Since Flowserve Corporation (NYSE:FLS) has faced bearish sentiment from hedge fund managers, we can see that there exists a select few funds who sold off their positions entirely heading into Q4. Intriguingly, Dmitry Balyasny’s Balyasny Asset Management dropped the largest stake of the “upper crust” of funds tracked by Insider Monkey, comprising an estimated $11.6 million in stock. Mark Coe’s fund, Intrinsic Edge Capital, also cut its stock, about $11.5 million worth. These bearish behaviors are important to note, as total hedge fund interest was cut by 6 funds heading into Q4.

Let’s also examine hedge fund activity in other stocks similar to Flowserve Corporation (NYSE:FLS). These stocks are Evoqua Water Technologies Corp. (NYSE:AQUA), Hamilton Lane Incorporated (NASDAQ:HLNE), ChampionX Corporation (NASDAQ:CHX), Virtu Financial Inc (NASDAQ:VIRT), Revolve Group, Inc. (NYSE:RVLV), Air Lease Corp (NYSE:AL), and Madison Square Garden Sports Corp. (NYSE:MSGS). All of these stocks’ market caps resemble FLS’s market cap.

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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 $443 million. That figure was $200 million in FLS’s case. Madison Square Garden Sports Corp. (NYSE:MSGS) is the most popular stock in this table. On the other hand Virtu Financial Inc (NASDAQ:VIRT) is the least popular one with only 15 bullish hedge fund positions. Flowserve Corporation (NYSE:FLS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for FLS is 33.7. 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 negative signal and 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 surpassed the market again by 3.6 percentage points. Unfortunately FLS wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); FLS investors were disappointed as the stock returned -11.2% since the end of September (through 12/31) 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 most of these stocks already outperformed the market in 2021.

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