First South Bancorp, Inc. (FSBK): Are Hedge Funds Right About This Stock?

Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.

First South Bancorp, Inc. (NASDAQ:FSBK) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 4 hedge funds’ portfolios at the end of September. It may not come as a surprise, as the shares of First South Bancorp, Inc. (NASDAQ:FSBK) were flat during the quarter. For a better understanding of the hedge fund sentiment, we will discuss hedge funds that had positions in First South Bancorp, Inc., at the end of the third quarter.

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 Magnum Hunter Resources Corp (OTCMKTS:MHRC), Key Technology, Inc. (NASDAQ:KTEC), and Vuzix Corporation (NASDAQ:VUZI) to gather more data points.

In the eyes of most investors, hedge funds are perceived as underperforming, old investment vehicles of years past. While there are over 8000 funds in operation at the moment, We hone in on the upper echelon of this group, approximately 700 funds. These hedge fund managers orchestrate bulk of the hedge fund industry’s total asset base, and by paying attention to their best picks, Insider Monkey has found numerous investment strategies that have historically defeated Mr. Market. Insider Monkey’s small-cap hedge fund strategy outrun the S&P 500 index by 12 percentage points per annum for a decade in their back tests.

With all of this in mind, we’re going to view the recent action encompassing First South Bancorp, Inc. (NASDAQ:FSBK).

Hedge fund activity in First South Bancorp, Inc. (NASDAQ:FSBK)

At the end of Q3, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, flat over one quarter earlier. With the smart money’s sentiment swirling, there exists a few noteworthy hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Basswood Capital, managed by Matthew Lindenbaum, holds the biggest position in First South Bancorp, Inc. (NASDAQ:FSBK). Basswood Capital has a $3.7 million position in the stock, comprising 0.2% of its 13F portfolio. The second largest stake is held by Jeffrey Gendell of Tontine Asset Management, with a $1.4 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Other professional money managers that hold long positions encompass Renaissance Technologies, and Sahm Adrangi’s Kerrisdale Capital.

Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.

Let’s now review hedge fund activity in other stocks similar to First South Bancorp, Inc. (NASDAQ:FSBK). These stocks are Magnum Hunter Resources Corp (OTCMKTS:MHRC), Key Technology, Inc. (NASDAQ:KTEC), Vuzix Corporation (NASDAQ:VUZI), and bebe stores, inc. (NASDAQ:BEBE). All of these stocks’ market caps resemble First South Bancorp, Inc. (NASDAQ:FSBK)’s market cap.

As you can see, these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $7 million. That figure was $6 million in First South Bancorp, Inc. (NASDAQ:FSBK)’s case. Magnum Hunter Resources Corp (OTCMKTS:MHRC) is the most popular stock in this table. On the other hand, Key Technology, Inc. (NASDAQ:KTEC) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks, First South Bancorp, Inc. (NASDAQ:FSBK) is even less popular than Key Technology, Inc. (NASDAQ:KTEC). Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case, more research is warranted.