Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With this in mind let’s see whether FLIR Systems, Inc. (NASDAQ:FLIR) makes for a good investment at the moment. We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
Is FLIR Systems, Inc. (NASDAQ:FLIR) an outstanding investment now? Money managers are becoming hopeful. The number of bullish hedge fund positions moved up by 7 recently. Our calculations also showed that FLIR isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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.
Cliff Asness of AQR Capital Management
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. With all of this in mind we’re going to take a peek at the key hedge fund action regarding FLIR Systems, Inc. (NASDAQ:FLIR).
How have hedgies been trading FLIR Systems, Inc. (NASDAQ:FLIR)?
At the end of the fourth quarter, a total of 32 of the hedge funds tracked by Insider Monkey were long this stock, a change of 28% from the third quarter of 2019. The graph below displays the number of hedge funds with bullish position in FLIR over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
Among these funds, Royce & Associates held the most valuable stake in FLIR Systems, Inc. (NASDAQ:FLIR), which was worth $61.5 million at the end of the third quarter. On the second spot was D E Shaw which amassed $55.9 million worth of shares. AQR Capital Management, GLG Partners, and Prospector Partners 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 Prospector Partners allocated the biggest weight to FLIR Systems, Inc. (NASDAQ:FLIR), around 1.56% of its 13F portfolio. Neo Ivy Capital is also relatively very bullish on the stock, setting aside 0.81 percent of its 13F equity portfolio to FLIR.
As one would reasonably expect, some big names have been driving this bullishness. Stevens Capital Management, managed by Matthew Tewksbury, created the largest position in FLIR Systems, Inc. (NASDAQ:FLIR). Stevens Capital Management had $1.4 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also initiated a $1.3 million position during the quarter. The other funds with new positions in the stock are Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, Alec Litowitz and Ross Laser’s Magnetar Capital, and Joel Greenblatt’s Gotham Asset Management.
Let’s now take a look at hedge fund activity in other stocks similar to FLIR Systems, Inc. (NASDAQ:FLIR). These stocks are Momo Inc (NASDAQ:MOMO), Owl Rock Capital Corporation (NYSE:ORCC), WABCO Holdings Inc. (NYSE:WBC), and Arrow Electronics, Inc. (NYSE:ARW). This group of stocks’ market caps are similar to FLIR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MOMO | 38 | 917767 | 11 |
| ORCC | 8 | 159825 | 2 |
| WBC | 34 | 1206287 | 2 |
| ARW | 34 | 680214 | 10 |
| Average | 28.5 | 741023 | 6.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.5 hedge funds with bullish positions and the average amount invested in these stocks was $741 million. That figure was $203 million in FLIR’s case. Momo Inc (NASDAQ:MOMO) is the most popular stock in this table. On the other hand Owl Rock Capital Corporation (NYSE:ORCC) is the least popular one with only 8 bullish hedge fund positions. FLIR Systems, Inc. (NASDAQ:FLIR) 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 FLIR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on FLIR were disappointed as the stock returned -38.2% 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.
