Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Newtek Business Services, Corp (NASDAQ:NEWT).
Newtek Business Services, Corp (NASDAQ:NEWT) shares didn’t see a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 6 hedge funds’ portfolios at the end of September, same as at the end of June. At the end of this article we will also compare NEWT to other stocks including West Marine, Inc. (NASDAQ:WMAR), eHealth, Inc. (NASDAQ:EHTH), and MBT Financial Corp (NASDAQ:MBTF) to get a better sense of its popularity.
Follow Newtek Business Services Inc. (NASDAQ:NEWT)
Follow Newtek Business Services Inc. (NASDAQ:NEWT)
We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs. We launched this strategy 2.5 years ago and it returned more than 39% since then, vs. 22% gain registered by the S&P 500 ETFs.
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What does the smart money think about Newtek Business Services, Corp (NASDAQ:NEWT)?
Heading into the fourth quarter of 2016, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, unchanged from the second quarter of 2016. Below, you can check out the change in the number of bullish hedge fund positions in NEWT over the last 5 quarters, which doubled during the first-half of 2016. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Of the funds tracked by Insider Monkey, Royce & Associates, led by Chuck Royce, holds the number one position in Newtek Business Services, Inc (NASDAQ:NEWT). Royce & Associates has a $4.6 million position in the stock. The second largest stake is held by Coe Capital Management, led by Mark Coe, which holds a $1.5 million position. Remaining members of the smart money that hold long positions consist of John Overdeck and David Siegel’s Two Sigma Advisors, Millennium Management, one of the 10 largest hedge funds in the world, and David E. Shaw’s D E Shaw. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds, which is based on the performance of their 13F long positions in non-micro-cap stocks.
We view hedge fund activity in the stock as unfavorable, but in this case there was only a single hedge fund selling its entire position: Mendon Capital Advisors. 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 only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Coe Capital Management).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Newtek Business Services, Corp (NASDAQ:NEWT) but similarly valued. We will take a look at West Marine, Inc. (NASDAQ:WMAR), eHealth, Inc. (NASDAQ:EHTH), MBT Financial Corp. (NASDAQ:MBTF), and Home Bancorp, Inc. (NASDAQ:HBCP). This group of stocks’ market valuations are similar to NEWT’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WMAR | 9 | 28869 | 3 |
| EHTH | 13 | 88330 | 0 |
| MBTF | 3 | 13041 | 1 |
| HBCP | 2 | 21468 | 0 |
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 $38 million. That figure was $8 million in NEWT’s case. eHealth, Inc. (NASDAQ:EHTH) is the most popular stock in this table. On the other hand Home Bancorp, Inc. (NASDAQ:HBCP) is the least popular one with only 2 bullish hedge fund positions. Newtek Business Services, Inc (NASDAQ:NEWT) 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. In this regard EHTH might be a better candidate to consider taking a long position in.
Disclosure: None
