Is Southern National Banc. of Virginia, Inc (SONA) A Good Stock To Buy?

A market correction in the third quarter, spurred by a number of global macroeconomic concerns ended up having a negative impact on the markets and many hedge funds as a result. The stocks of smaller companies were especially hard hit during this time as investors fled to investments seen as being safer. This is evident in the fact that the Russell 2000 ETF underperformed the S&P 500 ETF by 14 percentage points between June 25 and the end of October. We also received indications that hedge funds were trimming their positions amid the market volatility and uncertainty, and given their greater inclination towards smaller cap stocks than other investors, it follows that a stronger sell-off occurred in those stocks. Let’s study the hedge fund sentiment to see how those concerns affected their ownership of Southern National Banc. of Virginia, Inc (NASDAQ:SONA) during the quarter.

Southern National Banc. of Virginia, Inc (NASDAQ:SONA) investors should be aware that SONA was in 4 hedge funds’ portfolios at the end of September, unchanged from the number of funds long the stock at the end of the previous quarter (that’s a slightly bearish sign from our experience). At the end of this article we will also compare SONA to other stocks including Breeze-Eastern Corp (NYSEAMEX:BZC), Silvercrest Asset Management Group Inc (NASDAQ:SAMG), and Gold Resource Corporation (NYSEAMEX:GORO) to get a better sense of its popularity.

To most investors, hedge funds are seen as worthless, old investment tools of the past. While there are greater than 8000 funds in operation at present, our researchers choose to focus on the crème de la crème of this club, about 700 funds. These money managers watch over most of the smart money’s total capital, and by keeping track of their finest stock picks, Insider Monkey has unearthed various investment strategies that have historically outrun the broader indices. Insider Monkey’s small-cap hedge fund strategy outrun the S&P 500 index by 12 percentage points annually for a decade in their back tests.

Keeping this in mind, let’s take a gander at the recent action surrounding Southern National Banc. of Virginia, Inc (NASDAQ:SONA).

How are hedge funds trading Southern National Banc. of Virginia, Inc (NASDAQ:SONA)?

At the end of the third quarter, a total of 4 of the hedge funds tracked by Insider Monkey were bullish in this stock, unchanged from that of the second quarter. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

According to publicly available hedge fund holdings data compiled by Insider Monkey, Mendon Capital Advisors, managed by Anton Schutz, holds the biggest position in Southern National Banc. of Virginia, Inc (NASDAQ:SONA). Mendon Capital Advisors has a $4.5 million position in the stock, comprising 1.3% of its 13F portfolio. The second most bullish hedge fund manager is Neil Chriss of Hutchin Hill Capital, with a $2.7 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Other peers that hold long positions include Chuck Royce’s Royce & Associates, and Jeffrey Bronchick’s Cove Street Capital.

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 Southern National Banc. of Virginia, Inc (NASDAQ:SONA) but similarly valued. These stocks are Breeze-Eastern Corp (NYSEAMEX:BZC), Silvercrest Asset Management Group Inc (NASDAQ:SAMG), Gold Resource Corporation (NYSEAMEX:GORO), and Codexis, Inc. (NASDAQ:CDXS). This group of stocks’ market valuations are similar to SONA’s market valuation.

As you can see these stocks had an average of 5.75 hedge funds with bullish positions and the average amount invested in these stocks was $18 million.That figure was $10 millions in SONA’s case. Codexis, Inc. (NASDAQ:CDXS) is the most popular stock in this table. On the other hand Breeze-Eastern Corp (NYSEAMEX:BZC) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Southern National Banc. of Virginia, Inc (NASDAQ:SONA) is even less popular than BZC. Considering that hedge funds aren’t fond of this stock, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.