We are still in an overall bull market and many stocks that smart money investors were piling into surged through the end of November. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 54% and 51% respectively. Hedge funds’ top 3 stock picks returned 41.7% this year and beat the S&P 500 ETFs by 14 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Northeast Bancorp (NASDAQ:NBN).
Hedge fund interest in Northeast Bancorp (NASDAQ:NBN) 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 Norwood Financial Corp. (NASDAQ:NWFL), GlobalSCAPE, Inc. (NYSE:GSB), and Rick’s Cabaret Int’l, Inc (NASDAQ:RICK) to gather more data points. Our calculations also showed that NBN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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.
Jim Simons of Renaissance Technologies
We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. Keeping this in mind we’re going to take a look at the latest hedge fund action encompassing Northeast Bancorp (NASDAQ:NBN).
Hedge fund activity in Northeast Bancorp (NASDAQ:NBN)
At Q3’s end, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in NBN over the last 17 quarters. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
More specifically, Castine Capital Management was the largest shareholder of Northeast Bancorp (NASDAQ:NBN), with a stake worth $19.5 million reported as of the end of September. Trailing Castine Capital Management was Renaissance Technologies, which amassed a stake valued at $6.5 million. Basswood Capital, MFP Investors, and Arrowstreet Capital were 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 Castine Capital Management allocated the biggest weight to Northeast Bancorp (NASDAQ:NBN), around 5.34% of its 13F portfolio. MFP Investors is also relatively very bullish on the stock, earmarking 0.71 percent of its 13F equity portfolio to NBN.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Royce & Associates. 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 Millennium Management).
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Northeast Bancorp (NASDAQ:NBN) but similarly valued. We will take a look at Norwood Financial Corp. (NASDAQ:NWFL), GlobalSCAPE, Inc. (NYSE:GSB), Rick’s Cabaret Int’l, Inc (NASDAQ:RICK), and LF Capital Acquistion Corp. (NASDAQ:LFAC). All of these stocks’ market caps are similar to NBN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NWFL | 2 | 2150 | 0 |
| GSB | 5 | 21166 | 0 |
| RICK | 8 | 12926 | 1 |
| LFAC | 11 | 27064 | -1 |
| Average | 6.5 | 15827 | 0 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.5 hedge funds with bullish positions and the average amount invested in these stocks was $16 million. That figure was $38 million in NBN’s case. LF Capital Acquistion Corp. (NASDAQ:LFAC) is the most popular stock in this table. On the other hand Norwood Financial Corp. (NASDAQ:NWFL) is the least popular one with only 2 bullish hedge fund positions. Northeast Bancorp (NASDAQ:NBN) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately NBN wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NBN investors were disappointed as the stock returned -2.5% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.
Disclosure: None. This article was originally published at Insider Monkey.
