At the end of February we announced the arrival of the first US recession since 2009 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 Flotek Industries Inc (NYSE:FTK).
Flotek Industries Inc (NYSE:FTK) shareholders have witnessed a decrease in activity from the world's largest hedge funds of late. Our calculations also showed that FTK isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, We take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we're going to check out the key hedge fund action surrounding Flotek Industries Inc (NYSE:FTK).
How are hedge funds trading Flotek Industries Inc (NYSE:FTK)?
At the end of the first quarter, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in FTK over the last 18 quarters. With hedgies' capital changing hands, there exists a few notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Newtyn Management, managed by Noah Levy and Eugene Dozortsev, holds the largest position in Flotek Industries Inc (NYSE:FTK). Newtyn Management has a $4.6 million position in the stock, comprising 1.6% of its 13F portfolio. The second largest stake is held by Peter Schliemann of Rutabaga Capital Management, with a $1.9 million position; the fund has 1.1% of its 13F portfolio invested in the stock. Remaining professional money managers with similar optimism encompass D. E. Shaw's D E Shaw, David P. Cohen's Minerva Advisors and Ken Griffin's Citadel Investment Group. In terms of the portfolio weights assigned to each position Newtyn Management allocated the biggest weight to Flotek Industries Inc (NYSE:FTK), around 1.59% of its 13F portfolio. Rutabaga Capital Management is also relatively very bullish on the stock, earmarking 1.11 percent of its 13F equity portfolio to FTK.
Because Flotek Industries Inc (NYSE:FTK) has witnessed a decline in interest from the aggregate hedge fund industry, logic holds that there exists a select few funds that slashed their entire stakes heading into Q4. Intriguingly, Bradley Louis Radoff's Fondren Management dumped the biggest investment of the 750 funds tracked by Insider Monkey, comprising about $1.7 million in stock. Israel Englander's fund, Millennium Management, also dumped its stock, about $0.2 million worth. These moves are important to note, as total hedge fund interest was cut by 1 funds heading into Q4.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Flotek Industries Inc (NYSE:FTK) but similarly valued. We will take a look at Community First Bancshares, Inc. (NASDAQ:CFBI), Hennessy Advisors, Inc. (NASDAQ:HNNA), Braemar Hotels & Resorts Inc. (NYSE:BHR), and LEAP THERAPEUTICS, INC. (NASDAQ:LPTX). This group of stocks' market valuations are similar to FTK's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CFBI,1,577,0 HNNA,2,975,0 BHR,13,13153,-7 LPTX,6,15568,2 Average,5.5,7568,-1.25 [/table]
As you can see these stocks had an average of 5.5 hedge funds with bullish positions and the average amount invested in these stocks was $8 million. That figure was $8 million in FTK's case. Braemar Hotels & Resorts Inc. (NYSE:BHR) is the most popular stock in this table. On the other hand Community First Bancshares, Inc. (NASDAQ:CFBI) is the least popular one with only 1 bullish hedge fund positions. Flotek Industries Inc (NYSE:FTK) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.2% in 2020 through June 17th but beat the market by 14.8 percentage points. Unfortunately FTK wasn't nearly as popular as these 10 stocks and hedge funds that were betting on FTK were disappointed as the stock returned 14.6% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
