While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and optimism towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the first quarter and hedging or reducing many of their long positions. However, as we know, big investors usually buy stocks with strong fundamentals, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding SPX FLOW, Inc. (NYSE:FLOW).
SPX FLOW, Inc. (NYSE:FLOW) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 20 hedge funds’ portfolios at the end of the first quarter of 2019. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as NovaGold Resources Inc. (NYSE:NG), Asbury Automotive Group, Inc. (NYSE:ABG), and Seacoast Banking Corporation of Florida (NASDAQ:SBCF) to gather more data points.
If you’d ask most traders, hedge funds are perceived as unimportant, old financial tools of the past. While there are more than 8000 funds with their doors open today, Our experts choose to focus on the bigwigs of this group, approximately 750 funds. These money managers watch over the majority of the smart money’s total asset base, and by shadowing their highest performing stock picks, Insider Monkey has uncovered a number of investment strategies that have historically outperformed the S&P 500 index. Insider Monkey’s flagship hedge fund strategy beat the S&P 500 index by around 5 percentage points per annum since its inception in May 2014 through the end of May. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 30.9% since February 2017 (through May 30th) even though the market was up nearly 24% during the same period. We just shared a list of 5 short targets in our latest quarterly update and they are already down an average of 11.9% in less than a couple of weeks whereas our long picks outperformed the market by 2 percentage points in this volatile 2 week period.
Noam Gottesman, GLG Partners
Let’s analyze the recent hedge fund action encompassing SPX FLOW, Inc. (NYSE:FLOW).
How are hedge funds trading SPX FLOW, Inc. (NYSE:FLOW)?
At the end of the first quarter, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in FLOW over the last 15 quarters. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
The largest stake in SPX FLOW, Inc. (NYSE:FLOW) was held by Impax Asset Management, which reported holding $57.4 million worth of stock at the end of March. It was followed by Diamond Hill Capital with a $35.3 million position. Other investors bullish on the company included D E Shaw, Rutabaga Capital Management, and GLG Partners.
Due to the fact that SPX FLOW, Inc. (NYSE:FLOW) has experienced a decline in interest from the smart money, it’s safe to say that there were a few fund managers that decided to sell off their full holdings by the end of the third quarter. Interestingly, Minhua Zhang’s Weld Capital Management said goodbye to the biggest investment of the “upper crust” of funds watched by Insider Monkey, comprising an estimated $0.5 million in stock. David Costen Haley’s fund, HBK Investments, also sold off its stock, about $0.3 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as SPX FLOW, Inc. (NYSE:FLOW) but similarly valued. We will take a look at NovaGold Resources Inc. (NYSE:NG), Asbury Automotive Group, Inc. (NYSE:ABG), Seacoast Banking Corporation of Florida (NASDAQ:SBCF), and McDermott International, Inc. (NYSE:MDR). This group of stocks’ market valuations match FLOW’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NG | 13 | 168145 | -6 |
| ABG | 15 | 193748 | -1 |
| SBCF | 8 | 44815 | 2 |
| MDR | 22 | 169071 | -1 |
| Average | 14.5 | 143945 | -1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $144 million. That figure was $155 million in FLOW’s case. McDermott International (NYSE:MDR) is the most popular stock in this table. On the other hand Seacoast Banking Corporation of Florida (NASDAQ:SBCF) is the least popular one with only 8 bullish hedge fund positions. SPX FLOW, Inc. (NYSE:FLOW) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on FLOW as the stock returned 13.7% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
