Is Northrim BanCorp, Inc. (NRIM) A Good Stock to Buy?

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. The Standard and Poor’s 500 Index returned 7.6% over the 12-month period ending November 21, while more than 51% of the constituents of the index underperformed the benchmark. Hence, a random stock picking process will most likely lead to disappointment. At the same time, the 30 most favored mid-cap stocks by the best performing hedge funds monitored by Insider Monkey generated a return of 18% over the same time span. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in Northrim BanCorp, Inc. (NASDAQ:NRIM).

Northrim BanCorp, Inc. (NASDAQ:NRIM) shareholders have witnessed a decrease in activity from the world’s largest hedge funds lately. NRIM was in 6 hedge funds’ portfolios at the end of the third quarter of 2016. There were 7 hedge funds in our database with NRIM positions at the end of the second quarter. 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 Owens Realty Mortgage Inc (NYSEMKT:ORM), Rightside Group Ltd (NASDAQ:NAME), and AcelRx Pharmaceuticals Inc (NASDAQ:ACRX) to gather more data points.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

Sergei Gontsarov/Shutterstock.com

Hedge fund activity in Northrim BanCorp, Inc. (NASDAQ:NRIM)

At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 14% drop from one quarter earlier. By comparison, 6 hedge funds held shares or bullish call options in NRIM heading into this year, with hedge fund ownership remaining very stable over the last year. With hedge funds’ capital changing hands, there exists an “upper tier” of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Royce & Associates, led by Chuck Royce, holds the largest position in Northrim BanCorp, Inc. (NASDAQ:NRIM). Royce & Associates has a $15.9 million position in the stock. On Royce & Associates’ heels is Private Capital Management, led by Gregg J. Powers, holding a $3.5 million position. Other members of the smart money with similar optimism encompass Renaissance Technologies, one of the largest hedge funds in the world, John Overdeck and David Siegel’s Two Sigma Advisors, and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors. 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: Millennium Management. 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 none of the 700+ hedge funds tracked by Insider Monkey identified NRIM as a viable investment and initiated a position in the stock.

Let’s check out hedge fund activity in other stocks similar to Northrim BanCorp, Inc. (NASDAQ:NRIM). These stocks are Owens Realty Mortgage Inc (NYSEMKT:ORM), Rightside Group Ltd (NASDAQ:NAME), AcelRx Pharmaceuticals Inc (NASDAQ:ACRX), and Westport Innovations Inc. (USA) (NASDAQ:WPRT). All of these stocks’ market caps are closest to NRIM’s market cap.

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 $19 million. That figure was $23 million in NRIM’s case. Rightside Group Ltd (NASDAQ:NAME) is the most popular stock in this table. On the other hand Owens Realty Mortgage Inc (NYSEMKT:ORM) is the least popular one with only 4 bullish hedge fund positions. Northrim BanCorp, Inc. (NASDAQ:NRIM) 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 NAME might be a better candidate to consider taking a long position in.

Disclosure: None