We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The 800+ hedge funds and famous money managers tracked by Insider Monkey have already compiled and submitted their 13F filings for the fourth quarter, which unveil their equity positions as of December 31. We went through these filings, fixed typos and other more significant errors and identified the changes in hedge fund portfolios. Our extensive review of these public filings is finally over, so this article is set to reveal the smart money sentiment towards Flex Ltd. (NASDAQ:FLEX).
Hedge fund interest in Flex Ltd. (NASDAQ:FLEX) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare FLEX to other stocks including Jefferies Financial Group Inc. (NYSE:JEF), Arrowhead Pharmaceuticals, Inc. (NASDAQ:ARWR), and Nordstrom, Inc. (NYSE:JWN) to get a better sense of its popularity.
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 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Stanley Druckenmiller of Duquesne Capital
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now let’s go over the key hedge fund action surrounding Flex Ltd. (NASDAQ:FLEX).
How have hedgies been trading Flex Ltd. (NASDAQ:FLEX)?
Heading into the first quarter of 2020, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in FLEX over the last 18 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
The largest stake in Flex Ltd. (NASDAQ:FLEX) was held by Glenview Capital, which reported holding $256.7 million worth of stock at the end of September. It was followed by Iridian Asset Management with a $233.9 million position. Other investors bullish on the company included Lyrical Asset Management, D E Shaw, and Pzena Investment Management. In terms of the portfolio weights assigned to each position Shannon River Fund Management allocated the biggest weight to Flex Ltd. (NASDAQ:FLEX), around 9.11% of its 13F portfolio. Nishkama Capital is also relatively very bullish on the stock, earmarking 7.57 percent of its 13F equity portfolio to FLEX.
Due to the fact that Flex Ltd. (NASDAQ:FLEX) has witnessed falling interest from hedge fund managers, it’s safe to say that there exists a select few funds that decided to sell off their positions entirely in the third quarter. It’s worth mentioning that Kevin McCarthy’s Breakline Capital dropped the biggest investment of the 750 funds monitored by Insider Monkey, valued at close to $3.5 million in stock, and Matthew Tewksbury’s Stevens Capital Management was right behind this move, as the fund cut about $0.9 million worth. These moves are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Flex Ltd. (NASDAQ:FLEX) but similarly valued. We will take a look at Jefferies Financial Group Inc. (NYSE:JEF), Arrowhead Pharmaceuticals, Inc. (NASDAQ:ARWR), Nordstrom, Inc. (NYSE:JWN), and Jabil Inc. (NYSE:JBL). This group of stocks’ market caps are closest to FLEX’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| JEF | 31 | 720328 | -3 |
| ARWR | 26 | 259366 | 11 |
| JWN | 30 | 159760 | 7 |
| JBL | 34 | 641843 | 0 |
| Average | 30.25 | 445324 | 3.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.25 hedge funds with bullish positions and the average amount invested in these stocks was $445 million. That figure was $1581 million in FLEX’s case. Jabil Inc. (NYSE:JBL) is the most popular stock in this table. On the other hand Arrowhead Pharmaceuticals, Inc. (NASDAQ:ARWR) is the least popular one with only 26 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. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately FLEX wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on FLEX were disappointed as the stock returned -48% 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
