Is Unity Bancorp, Inc. (UNTY) A Good Stock To Buy?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Unity Bancorp, Inc. (NASDAQ:UNTY).

Is UNTY stock a buy? Unity Bancorp, Inc. (NASDAQ:UNTY) has seen a decrease in hedge fund sentiment of late. Unity Bancorp, Inc. (NASDAQ:UNTY) was in 4 hedge funds’ portfolios at the end of March. The all time high for this statistic is 7. There were 5 hedge funds in our database with UNTY holdings at the end of December. Our calculations also showed that UNTY isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

In today’s marketplace there are numerous tools market participants have at their disposal to appraise stocks. Two of the less known tools are hedge fund and insider trading moves. Our researchers have shown that, historically, those who follow the best picks of the top hedge fund managers can outclass the broader indices by a superb amount (see the details here). Also, our monthly newsletter’s portfolio of long stock picks returned 206.8% since March 2017 (through May 2021) and beat the S&P 500 Index by more than 115 percentage points. You can download a sample issue of this newsletter on our website .

Phil Stone of Fourthstone LLC

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund wants to buy this $28 biotech stock for $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now we’re going to check out the new hedge fund action regarding Unity Bancorp, Inc. (NASDAQ:UNTY).

Do Hedge Funds Think UNTY Is A Good Stock To Buy Now?

At the end of the first quarter, a total of 4 of the hedge funds tracked by Insider Monkey were long this stock, a change of -20% from the previous quarter. By comparison, 4 hedge funds held shares or bullish call options in UNTY a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Robert I. Usdan and Wayne K. Goldstein’s Endicott Management has the largest position in Unity Bancorp, Inc. (NASDAQ:UNTY), worth close to $14.5 million, amounting to 3.9% of its total 13F portfolio. Sitting at the No. 2 spot is Royce & Associates, managed by Chuck Royce, which holds a $2.7 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining peers that hold long positions contain Phil Stone’s Fourthstone LLC, Renaissance Technologies and . In terms of the portfolio weights assigned to each position Endicott Management allocated the biggest weight to Unity Bancorp, Inc. (NASDAQ:UNTY), around 3.95% of its 13F portfolio. Fourthstone LLC is also relatively very bullish on the stock, setting aside 0.93 percent of its 13F equity portfolio to UNTY.

Since Unity Bancorp, Inc. (NASDAQ:UNTY) has witnessed falling interest from the smart money, logic holds that there is a sect of fund managers that slashed their full holdings by the end of the first quarter. Interestingly, Emanuel J. Friedman’s EJF Capital dropped the largest stake of all the hedgies watched by Insider Monkey, valued at close to $5.3 million in stock. Roger Ibbotson’s fund, Zebra Capital Management, also dropped its stock, about $0.3 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 1 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Unity Bancorp, Inc. (NASDAQ:UNTY) but similarly valued. We will take a look at Gaia, Inc. (NASDAQ:GAIA), RISE Education Cayman Ltd (NASDAQ:REDU), Milestone Scientific, Inc. (NYSE:MLSS), vTv Therapeutics Inc (NASDAQ:VTVT), Remark Holdings, Inc. (NASDAQ:MARK), National Bankshares Inc. (NASDAQ:NKSH), and Ayro, Inc. (NASDAQ:AYRO). This group of stocks’ market caps are similar to UNTY’s market cap.

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As you can see these stocks had an average of 5.4 hedge funds with bullish positions and the average amount invested in these stocks was $9 million. That figure was $21 million in UNTY’s case. Gaia, Inc. (NASDAQ:GAIA) is the most popular stock in this table. On the other hand RISE Education Cayman Ltd (NASDAQ:REDU) is the least popular one with only 2 bullish hedge fund positions. Unity Bancorp, Inc. (NASDAQ:UNTY) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for UNTY is 31.1. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.2% in 2021 through June 11th and surpassed the market again by 3.3 percentage points. Unfortunately UNTY wasn’t nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); UNTY investors were disappointed as the stock returned 3.1% since the end of March (through 6/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

Disclosure: None. This article was originally published at Insider Monkey.