Hedge Funds Soured On Flowers Foods, Inc. (FLO) Before The Coronavirus

Reymerlyn Martin

Will the new coronavirus cause a recession in US in the next 6 months? On February 27th, we put the probability at 75% and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Flowers Foods, Inc. (NYSE:FLO).

Flowers Foods, Inc. (NYSE:FLO) was in 20 hedge funds' portfolios at the end of the fourth quarter of 2019. FLO has seen a decrease in enthusiasm from smart money lately. There were 31 hedge funds in our database with FLO positions at the end of the previous quarter. Our calculations also showed that FLO 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).

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.

[caption id="attachment_27676" align="aligncenter" width="400"] Israel Englander of Millennium Management[/caption]

MILLENNIUM 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. Now let's take a peek at the new hedge fund action surrounding Flowers Foods, Inc. (NYSE:FLO).

How have hedgies been trading Flowers Foods, Inc. (NYSE:FLO)?

Heading into the first quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -35% from one quarter earlier. By comparison, 20 hedge funds held shares or bullish call options in FLO a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

Among these funds, Diamond Hill Capital held the most valuable stake in Flowers Foods, Inc. (NYSE:FLO), which was worth $66 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $58.9 million worth of shares. GLG Partners, GAMCO Investors, and Millennium Management 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 Diamond Hill Capital allocated the biggest weight to Flowers Foods, Inc. (NYSE:FLO), around 0.33% of its 13F portfolio. Quantinno Capital is also relatively very bullish on the stock, earmarking 0.25 percent of its 13F equity portfolio to FLO.

Because Flowers Foods, Inc. (NYSE:FLO) has experienced a decline in interest from the smart money, logic holds that there lies a certain "tier" of money managers that elected to cut their positions entirely heading into Q4. It's worth mentioning that David Harding's Winton Capital Management cut the largest stake of the 750 funds monitored by Insider Monkey, comprising about $3.5 million in stock, and Mike Vranos's Ellington was right behind this move, as the fund dumped about $1.5 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 11 funds heading into Q4.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Flowers Foods, Inc. (NYSE:FLO) but similarly valued. We will take a look at Darling Ingredients Inc. (NYSE:DAR), PacWest Bancorp (NASDAQ:PACW), Chegg Inc (NYSE:CHGG), and H&R Block, Inc. (NYSE:HRB). All of these stocks' market caps match FLO's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DAR,16,294979,-11 PACW,31,249581,6 CHGG,39,422147,3 HRB,30,420973,7 Average,29,346920,1.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $347 million. That figure was $238 million in FLO's case. Chegg Inc (NYSE:CHGG) is the most popular stock in this table. On the other hand Darling Ingredients Inc. (NYSE:DAR) is the least popular one with only 16 bullish hedge fund positions. Flowers Foods, Inc. (NYSE:FLO) is not the least popular stock in this group but hedge fund interest is still below average. 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 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. A small number of hedge funds were also right about betting on FLO, though not to the same extent, as the stock returned -17.7% during the same time period and outperformed the market. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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