HMN Financial, Inc. (HMNF) Fell Out Of Favor With Hedge Funds?

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 900 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about HMN Financial, Inc. (NASDAQ:HMNF).

Hedge fund interest in HMN Financial, Inc. (NASDAQ:HMNF) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that HMNF isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings). 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 Weidai Ltd. (NYSE:WEI), Martin Midstream Partners L.P. (NASDAQ:MMLP), and Yunhong International (NASDAQ:ZGYHU) to gather more data points.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Jeffrey Gendell of Tontine Asset Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund wants to buy this $26 biotech stock for $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let’s take a gander at the key hedge fund action surrounding HMN Financial, Inc. (NASDAQ:HMNF).

Do Hedge Funds Think HMNF Is A Good Stock To Buy Now?

At Q1’s end, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 4 hedge funds with a bullish position in HMNF a year ago. With hedgies’ capital changing hands, there exists a few key hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Among these funds, Fourthstone LLC held the most valuable stake in HMN Financial, Inc. (NASDAQ:HMNF), which was worth $9.3 million at the end of the fourth quarter. On the second spot was Tontine Asset Management which amassed $6.3 million worth of shares. Renaissance Technologies was 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 Fourthstone LLC allocated the biggest weight to HMN Financial, Inc. (NASDAQ:HMNF), around 4.62% of its 13F portfolio. Tontine Asset Management is also relatively very bullish on the stock, dishing out 0.68 percent of its 13F equity portfolio to HMNF.

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 also examine hedge fund activity in other stocks similar to HMN Financial, Inc. (NASDAQ:HMNF). These stocks are Weidai Ltd. (NYSE:WEI), Martin Midstream Partners L.P. (NASDAQ:MMLP), Yunhong International (NASDAQ:ZGYHU), AzurRx BioPharma, Inc. (NASDAQ:AZRX), The New Home Company Inc (NYSE:NWHM), Fuel Tech Inc. (NASDAQ:FTEK), and Cyclerion Therapeutics, Inc. (NASDAQ:CYCN). This group of stocks’ market valuations are similar to HMNF’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 4.3 hedge funds with bullish positions and the average amount invested in these stocks was $10 million. That figure was $18 million in HMNF’s case. Cyclerion Therapeutics, Inc. (NASDAQ:CYCN) is the most popular stock in this table. On the other hand Martin Midstream Partners L.P. (NASDAQ:MMLP) is the least popular one with only 1 bullish hedge fund positions. HMN Financial, Inc. (NASDAQ:HMNF) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for HMNF is 40. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.2% in 2021 through June 11th and surpassed the market again by 3.3 percentage points. Unfortunately HMNF wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); HMNF investors were disappointed as the stock returned 4.9% since the end of March (through 6/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

Disclosure: None. This article was originally published at Insider Monkey.