Is MSBI A Good Stock To Buy Now?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 817 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Midland States Bancorp, Inc. (NASDAQ:MSBI) in this article.

Is MSBI a good stock to buy now? Hedge fund interest in Midland States Bancorp, Inc. (NASDAQ:MSBI) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that MSBI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). At the end of this article we will also compare MSBI to other stocks including The Manitowoc Company, Inc. (NYSE:MTW), Verona Pharma plc (NASDAQ:VRNA), and Spero Therapeutics (NASDAQ:SPRO) to get a better sense of its popularity.

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Paul Marshall of Marshall Wace

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 website. Now let’s go over the recent hedge fund action encompassing Midland States Bancorp, Inc. (NASDAQ:MSBI).

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

At third quarter’s end, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MSBI over the last 21 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

The largest stake in Midland States Bancorp, Inc. (NASDAQ:MSBI) was held by Arrowstreet Capital, which reported holding $2.4 million worth of stock at the end of September. It was followed by Millennium Management with a $2.1 million position. Other investors bullish on the company included Citadel Investment Group, Marshall Wace LLP, and AQR Capital Management. In terms of the portfolio weights assigned to each position Winton Capital Management allocated the biggest weight to Midland States Bancorp, Inc. (NASDAQ:MSBI), around 0.01% of its 13F portfolio. Ancora Advisors is also relatively very bullish on the stock, earmarking 0.01 percent of its 13F equity portfolio to MSBI.

Due to the fact that Midland States Bancorp, Inc. (NASDAQ:MSBI) has witnessed a decline in interest from the entirety of the hedge funds we track, it’s safe to say that there were a few hedge funds who were dropping their full holdings last quarter. Intriguingly, D. E. Shaw’s D E Shaw dropped the largest position of all the hedgies monitored by Insider Monkey, comprising about $0.3 million in stock, and Roger Ibbotson’s Zebra Capital Management was right behind this move, as the fund said goodbye to about $0.3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks similar to Midland States Bancorp, Inc. (NASDAQ:MSBI). These stocks are The Manitowoc Company, Inc. (NYSE:MTW), Verona Pharma plc (NASDAQ:VRNA), Spero Therapeutics (NASDAQ:SPRO), Kimball Electronics Inc (NASDAQ:KE), Casper Sleep Inc. (NYSE:CSPR), Genco Shipping & Trading Limited (NYSE:GNK), and CURO Group Holdings Corp. (NYSE:CURO). This group of stocks’ market caps match MSBI’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.4 hedge funds with bullish positions and the average amount invested in these stocks was $64 million. That figure was $9 million in MSBI’s case. The Manitowoc Company, Inc. (NYSE:MTW) is the most popular stock in this table. On the other hand Casper Sleep Inc. (NYSE:CSPR) is the least popular one with only 7 bullish hedge fund positions. Midland States Bancorp, Inc. (NASDAQ:MSBI) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MSBI is 45.7. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on MSBI as the stock returned 40.9% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.

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