Is Prosperity Bancshares, Inc. (PB) A Good Stock To Buy?

The equity market returns were very disappointing in the third quarter, “thanks” to the slowdown of China’s economy and the weaker-than-expected U.S. economic data. It was not entirely clear whether the broader market sell-off made U.S. equity valuations undervalued, but it definitely made them more attractive. It is worth mentioning that Russell 2000 ETF (IWM) underperformed the broad-market S&P 500 ETF by more than 14 percentage points during the period of June 25, 2015 through October 30, 2015. This clearly points to the fact that most investors, including hedge fund firms and institutional investors, heavily cut their exposure to high-potential (but seemingly riskier) small-cap stocks during the bloody third quarter. So let’s take a glance at the smart money sentiment towards Prosperity Bancshares, Inc. (NYSE:PB) and see how it was affected.

Is Prosperity Bancshares, Inc. (NYSE:PB) worth your attention right now? The best stock pickers are selling. The number of bullish hedge fund positions retreated by 1 in recent months. Prosperity Bancshares, Inc. (NYSE:PB) was in 16 hedge funds’ portfolios at the end of September. There were 17 hedge funds in our database with Prosperity Bancshares, Inc. (NYSE:PB) holdings at the end of the previous quarter. At the end of this article, we will also compare Prosperity Bancshares, Inc. (NYSE:PB) to other stocks, including Youku Tudou Inc (ADR) (NYSE:YOKU), BIO-TECHNE Corp (NASDAQ:TECH), and GNC Holdings Inc (NYSE:GNC) to get a better sense of its popularity.

According to most shareholders, hedge funds are perceived as slow, old investment vehicles of years past. While there are more than 8000 funds in operation at present, We look at the crème de la crème of this group, approximately 700 funds. These investment experts orchestrate most of all hedge funds’ total asset base, and by following their finest equity investments, Insider Monkey has brought to light various investment strategies that have historically exceeded Mr. Market. Insider Monkey’s small-cap hedge fund strategy outpaced the S&P 500 index by 12 percentage points a year for a decade in their back tests.

With all of this in mind, let’s take a gander at the recent action regarding Prosperity Bancshares, Inc. (NYSE:PB).

How are hedge funds trading Prosperity Bancshares, Inc. (NYSE:PB)?

Heading into Q4, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from one quarter earlier. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Fisher Asset Management, managed by Ken Fisher, holds the largest position in Prosperity Bancshares, Inc. (NYSE:PB). Fisher Asset Management has a $37.1 million position in the stock, comprising 0.1% of its 13F portfolio. The second most bullish fund manager is Millennium Management, managed by Israel Englander, which holds a $23.6 million position; less than 0.1% of its 13F portfolio is allocated to the stock. Some other members of the smart money that hold long positions encompass Fred Cummings’s Elizabeth Park Capital Management, Paul Marshall and Ian Wace’s Marshall Wace LLP and Jim Simons’s Renaissance Technologies.

Since Prosperity Bancshares, Inc. (NYSE:PB) has witnessed a declination in interest from the aggregate hedge fund industry, logic holds that there were a few money managers who were dropping their positions entirely last quarter. At the top of the heap, Sharif Siddiqui’s Alpenglow Capital dumped the largest position of all the hedgies followed by Insider Monkey, comprising about $5.4 million in stock, and John Overdeck and David Siegel’s Two Sigma Advisors was right behind this move, as the fund sold off about $2.2 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest was cut by 1 funds last quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Prosperity Bancshares, Inc. (NYSE:PB) but similarly valued. These stocks are Youku Tudou Inc (ADR) (NYSE:YOKU), BIO-TECHNE Corp (NASDAQ:TECH), GNC Holdings Inc (NYSE:GNC), and The Hanover Insurance Group, Inc. (NYSE:THG). This group of stocks’ market valuations are similar to PB’s market valuation.

As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $466 million. That figure was $122 million in PB’s case. GNC Holdings Inc (NYSE:GNC) is the most popular stock in this table. On the other hand BIO-TECHNE Corp (NASDAQ:TECH) is the least popular one with only 9 bullish hedge fund positions. Prosperity Bancshares, Inc. (NYSE:PB) 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 GNC might be a better candidate to consider a long position.