Amid an overall bull market, many stocks that smart money investors were collectively bullish on surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Our research shows that most of the stocks that smart money likes historically generate strong risk-adjusted returns. That’s why we weren’t surprised when hedge funds’ top 20 large-cap stock picks generated a return of 37.4% through the end of November and outperformed the broader market benchmark by 9.9 percentage points.This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.
The First Bancshares, Inc. (MS) (NASDAQ:FBMS) investors should pay attention to an increase in activity from the world’s largest hedge funds in recent months. FBMS was in 8 hedge funds’ portfolios at the end of September. There were 7 hedge funds in our database with FBMS holdings at the end of the previous quarter. Our calculations also showed that FBMS 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.
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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.
Israel Englander of Millennium Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 also rely on the best performing hedge funds‘ buy/sell signals. Let’s analyze the latest hedge fund action surrounding The First Bancshares, Inc. (MS) (NASDAQ:FBMS).
What have hedge funds been doing with The First Bancshares, Inc. (MS) (NASDAQ:FBMS)?
Heading into the fourth quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FBMS over the last 17 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
Among these funds, Mendon Capital Advisors held the most valuable stake in The First Bancshares, Inc. (MS) (NASDAQ:FBMS), which was worth $15.5 million at the end of the third quarter. On the second spot was Castine Capital Management which amassed $9.5 million worth of shares. Millennium Management, Renaissance Technologies, and Winton Capital 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 Mendon Capital Advisors allocated the biggest weight to The First Bancshares, Inc. (MS) (NASDAQ:FBMS), around 2.62% of its 13F portfolio. Castine Capital Management is also relatively very bullish on the stock, designating 2.59 percent of its 13F equity portfolio to FBMS.
With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. ExodusPoint Capital, managed by Michael Gelband, assembled the most outsized position in The First Bancshares, Inc. (MS) (NASDAQ:FBMS). ExodusPoint Capital had $0.2 million invested in the company at the end of the quarter.
Let’s also examine hedge fund activity in other stocks similar to The First Bancshares, Inc. (MS) (NASDAQ:FBMS). We will take a look at Schnitzer Steel Industries, Inc. (NASDAQ:SCHN), Heska Corp (NASDAQ:HSKA), Axcelis Technologies Inc (NASDAQ:ACLS), and Morphic Holding, Inc. (NASDAQ:MORF). This group of stocks’ market caps resemble FBMS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| SCHN | 11 | 22473 | -1 |
| HSKA | 12 | 51094 | -1 |
| ACLS | 15 | 86778 | 1 |
| MORF | 3 | 51522 | -3 |
| Average | 10.25 | 52967 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 10.25 hedge funds with bullish positions and the average amount invested in these stocks was $53 million. That figure was $33 million in FBMS’s case. Axcelis Technologies Inc (NASDAQ:ACLS) is the most popular stock in this table. On the other hand Morphic Holding, Inc. (NASDAQ:MORF) is the least popular one with only 3 bullish hedge fund positions. The First Bancshares, Inc. (MS) (NASDAQ:FBMS) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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. Unfortunately FBMS wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); FBMS investors were disappointed as the stock returned 4.2% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
