How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding First Choice Bancorp (NASDAQ:FCBP).
Is First Choice Bancorp (NASDAQ:FCBP) a healthy stock for your portfolio? The smart money is betting on the stock. The number of bullish hedge fund bets increased by 2 lately. Our calculations also showed that FCBP isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Chuck Royce of Royce & Associates
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind we’re going to check out the recent hedge fund action encompassing First Choice Bancorp (NASDAQ:FCBP).
How have hedgies been trading First Choice Bancorp (NASDAQ:FCBP)?
Heading into the fourth quarter of 2019, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 200% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FCBP over the last 17 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
The largest stake in First Choice Bancorp (NASDAQ:FCBP) was held by Renaissance Technologies, which reported holding $0.9 million worth of stock at the end of September. It was followed by Millennium Management with a $0.4 million position. The only other hedge fund that is bullish on the company was Royce & Associates.
As one would reasonably expect, some big names have jumped into First Choice Bancorp (NASDAQ:FCBP) headfirst. Millennium Management, managed by Israel Englander, initiated the most valuable position in First Choice Bancorp (NASDAQ:FCBP). Millennium Management had $0.4 million invested in the company at the end of the quarter. Chuck Royce’s Royce & Associates also initiated a $0 million position during the quarter.
Let’s now review hedge fund activity in other stocks similar to First Choice Bancorp (NASDAQ:FCBP). These stocks are The Meet Group, Inc. (NASDAQ:MEET), Noodles & Company (NASDAQ:NDLS), StarTek, Inc. (NYSE:SRT), and Cambium Networks Corporation (NASDAQ:CMBM). This group of stocks’ market valuations match FCBP’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MEET | 10 | 49716 | -2 |
| NDLS | 14 | 78633 | 2 |
| SRT | 4 | 6084 | 1 |
| CMBM | 7 | 6898 | -4 |
| Average | 8.75 | 35333 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $35 million. That figure was $1 million in FCBP’s case. Noodles & Company (NASDAQ:NDLS) is the most popular stock in this table. On the other hand StarTek, Inc. (NYSE:SRT) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks First Choice Bancorp (NASDAQ:FCBP) is even less popular than SRT. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on FCBP, though not to the same extent, as the stock returned 7.9% during the fourth quarter (through 11/30) and outperformed the market as well.
Disclosure: None. This article was originally published at Insider Monkey.