Is Hallmark Financial Services, Inc. (HALL) A Good Stock To Buy?

Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Micron and Anadarko Petroleum, have not done well during the last 12 months ending in October due to various reasons. Nevertheless, the data show elite investors’ consensus picks have done well on average. The top 30 S&P 500 stocks among hedge funds at the end of September 2014 yielded an average return of 9.5% during the last four quarters ending in October and sixty three percent of these 30 stocks outperformed the market. S&P 500 Index returned only 5.2% during the same period and less than 49% of its constituents managed to beat this return. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Hallmark Financial Services, Inc. (NASDAQ:HALL) from the perspective of those elite funds.

Hedge fund interest in Hallmark Financial Services, Inc. (NASDAQ:HALL) shares was flat at the end of last quarter. This is usually a negative indicator. 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 Wi-LAN Inc – US listing (NASDAQ:WILN), Horizon Bancorp (NASDAQ:HBNC), and XenoPort, Inc. (NASDAQ:XNPT) to gather more data points.

Today there are a lot of methods shareholders put to use to value publicly traded companies. A pair of the most under-the-radar methods are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the best picks of the top fund managers can beat the broader indices by a very impressive amount (see the details here).

With all of this in mind, let’s analyze the fresh action regarding Hallmark Financial Services, Inc. (NASDAQ:HALL).

What does the smart money think about Hallmark Financial Services, Inc. (NASDAQ:HALL)?

At the end of the third quarter, a total of 4 of the hedge funds tracked by Insider Monkey were bullish on this stock, unchanged from the previous quarter. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Cove Street Capital, managed by Jeffrey Bronchick, holds the number one position in Hallmark Financial Services, Inc. (NASDAQ:HALL). The fund reportedly holds a $17.2 million position in the stock, comprising 2.3% of its 13F portfolio. Sitting at the No. 2 spot is Jim Simons of Renaissance Technologies, with a $1.5 million position; less than 0.1% of its 13F portfolio is allocated to the company. Some other peers that are bullish contain Chuck Royce’s Royce & Associates, Gavin Saitowitz and Cisco J. del Valle’s Springbok Capital and .

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 go over hedge fund activity in other stocks similar to Hallmark Financial Services, Inc. (NASDAQ:HALL). We will take a look at Wi-LAN Inc – US listing (NASDAQ:WILN), Horizon Bancorp (NASDAQ:HBNC), XenoPort, Inc. (NASDAQ:XNPT), and Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL). All of these stocks’ market caps are closest to HALL’s market cap.

As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $35 million. That figure was $20 million in HALL’s case. Rigel Pharmaceuticals, Inc. (NASDAQ:RIGL) is the most popular stock in this table. On the other hand Horizon Bancorp (NASDAQ:HBNC) is the least popular one with only 4 bullish hedge fund positions, on par with Hallmark Financial Services, Inc. (NASDAQ:HALL). Considering that hedge funds aren’t very fond of this stock in relation to most of 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.