Is National Bankshares Inc. (NASDAQ:NKSH) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is National Bankshares Inc. (NASDAQ:NKSH) worth your attention right now? Investors who are in the know are becoming less hopeful. The number of bullish hedge fund bets shrunk by 1 recently. Our calculations also showed that NKSH isn’t among the 30 most popular stocks among hedge funds (see the video below).
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.
Let’s analyze the fresh hedge fund action encompassing National Bankshares Inc. (NASDAQ:NKSH).
What does smart money think about National Bankshares Inc. (NASDAQ:NKSH)?
At the end of the third quarter, a total of 2 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -33% from the second quarter of 2019. By comparison, 2 hedge funds held shares or bullish call options in NKSH a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).
Among these funds, Royce & Associates held the most valuable stake in National Bankshares Inc. (NASDAQ:NKSH), which was worth $18 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $3.1 million worth of shares.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Millennium Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified NKSH as a viable investment and initiated a position in the stock.
Let’s now review hedge fund activity in other stocks similar to National Bankshares Inc. (NASDAQ:NKSH). We will take a look at Catasys, Inc. (NASDAQ:CATS), Collectors Universe, Inc. (NASDAQ:CLCT), Viemed Healthcare, Inc. (NASDAQ:VMD), and Pioneer Floating Rate Trust (NYSE:PHD). All of these stocks’ market caps are closest to NKSH’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CATS | 7 | 2325 | 1 |
| CLCT | 9 | 34458 | 2 |
| VMD | 4 | 11765 | 4 |
| PHD | 1 | 25269 | -2 |
| Average | 5.25 | 18454 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 5.25 hedge funds with bullish positions and the average amount invested in these stocks was $18 million. That figure was $21 million in NKSH’s case. Collectors Universe, Inc. (NASDAQ:CLCT) is the most popular stock in this table. On the other hand Pioneer Floating Rate Trust (NYSE:PHD) is the least popular one with only 1 bullish hedge fund positions. National Bankshares Inc. (NASDAQ:NKSH) 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 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. A small number of hedge funds were also right about betting on NKSH as the stock returned 16.4% during Q4 (through 11/22) and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.