Is Shore Bancshares, Inc. (SHBI) Going to Burn These Hedge Funds?

Many investors, including Carl Icahn or Stan Druckenmiller, have been saying for a while now that the current market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the third quarter, many investors lost money due to unpredictable events such as the concerns over Valeant’s drug pricing policy that led to an overall drop among pharma stocks. Nevertheless, many of the stocks that tanked in the third quarter still sport strong fundamentals and their decline was more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Shore Bancshares, Inc. (NASDAQ:SHBI) changed recently.

Hedge fund interest in Shore Bancshares, Inc. (NASDAQ:SHBI) shares was flat at the end of last quarter. This is usually a negative indicator. The shares of Shore Bancshares, Inc were slightly up during the quarter, inching 3.08% higher. For an in-depth understanding of the hedge fund sentiment, we will find out more about hedge funds holding stakes in Shore Bancshares, Inc. (NASDAQ:SHBI) at the end of the previous 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 Farmland Partners Inc (NYSE:FPI), Travelzoo Inc. (NASDAQ:TZOO), and Fortress Biotech Inc (NASDAQ:FBIO) to gather more data points.

In the 21st century investor’s toolkit, there are many formulas stock traders can use to size up stocks. Two of the less known formulas are hedge fund and insider trading activity. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the market by a superb margin (see the details here).

With all of this in mind, let’s take a look at the fresh action encompassing Shore Bancshares, Inc. (NASDAQ:SHBI).

What does the smart money think about Shore Bancshares, Inc. (NASDAQ:SHBI)?

At the end of the third quarter, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, unchanged from the second quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Elizabeth Park Capital Management, managed by Fred Cummings, holds the number one position in Shore Bancshares, Inc. (NASDAQ:SHBI). Elizabeth Park Capital Management has a $3 million position in the stock, comprising 1% of its 13F portfolio. Sitting at the No. 2 spot is Basswood Capital, led by Matthew Lindenbaum, holding a $2.5 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that are bullish encompass Anton Schutz’s Mendon Capital Advisors, Jeffrey Gendell’s Tontine Asset Management, and Renaissance Technologies.

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 also examine hedge fund activity in other stocks – not necessarily in the same industry as Shore Bancshares, Inc. (NASDAQ:SHBI) but similarly valued. These stocks are Farmland Partners Inc (NYSE:FPI), Travelzoo Inc. (NASDAQ:TZOO), Fortress Biotech Inc (NASDAQ:FBIO), and Independence Contract Drilling Inc (NYSE:ICD). All of these stocks’ market caps are closest to Shore Bancshares, Inc. (NASDAQ:SHBI)’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 $8 million. That figure was $11 million in Shore Bancshares, Inc. (NASDAQ:SHBI)’s case. Travelzoo Inc. (NASDAQ:TZOO) is the most popular stock in this table. On the other hand, Farmland Partners Inc (NYSE:FPI) is the least popular one with only 4 bullish hedge fund positions. Shore Bancshares, Inc. (NASDAQ:SHBI) 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, Travelzoo Inc. (NASDAQ:TZOO) might be a better candidate to consider a long position.