Should I Avoid Veritex Holdings Inc (VBTX)?

While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Veritex Holdings Inc (NASDAQ:VBTX).

Veritex Holdings Inc (NASDAQ:VBTX) has seen a decrease in hedge fund interest of late. Veritex Holdings Inc (NASDAQ:VBTX) was in 6 hedge funds’ portfolios at the end of March. The all time high for this statistic is 17. There were 7 hedge funds in our database with VBTX holdings at the end of December. Our calculations also showed that VBTX isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund owns nearly 40% of this $24 biotech stock and is trying to buy the rest for around $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 let’s review the fresh hedge fund action regarding Veritex Holdings Inc (NASDAQ:VBTX).

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

At first quarter’s end, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from one quarter earlier. On the other hand, there were a total of 9 hedge funds with a bullish position in VBTX a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Mendon Capital Advisors held the most valuable stake in Veritex Holdings Inc (NASDAQ:VBTX), which was worth $14.5 million at the end of the fourth quarter. On the second spot was Forest Hill Capital which amassed $12.3 million worth of shares. Millennium Management, JCSD Capital, and Citadel Investment Group were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Mendon Capital Advisors allocated the biggest weight to Veritex Holdings Inc (NASDAQ:VBTX), around 5.34% of its 13F portfolio. Forest Hill Capital is also relatively very bullish on the stock, designating 3.69 percent of its 13F equity portfolio to VBTX.

Seeing as Veritex Holdings Inc (NASDAQ:VBTX) has witnessed falling interest from hedge fund managers, it’s easy to see that there were a few money managers who were dropping their full holdings last quarter. It’s worth mentioning that Matthew Hulsizer’s PEAK6 Capital Management cut the biggest position of the “upper crust” of funds tracked by Insider Monkey, worth close to $2.3 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also cut its stock, about $1.9 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 1 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Veritex Holdings Inc (NASDAQ:VBTX) but similarly valued. These stocks are YPF Sociedad Anonima (NYSE:YPF), Methode Electronics Inc. (NYSE:MEI), Delek US Holdings, Inc. (NYSE:DK), Design Therapeutics, Inc. (NASDAQ:DSGN), Plantronics, Inc. (NYSE:PLT), Generation Bio Co. (NASDAQ:GBIO), and Alector, Inc. (NASDAQ:ALEC). All of these stocks’ market caps match VBTX’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 12.9 hedge funds with bullish positions and the average amount invested in these stocks was $192 million. That figure was $39 million in VBTX’s case. Plantronics, Inc. (NYSE:PLT) is the most popular stock in this table. On the other hand YPF Sociedad Anonima (NYSE:YPF) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks Veritex Holdings Inc (NASDAQ:VBTX) is even less popular than YPF. Our overall hedge fund sentiment score for VBTX is 14.6. 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. Hedge funds clearly dropped the ball on VBTX as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 19.3% in 2021 through June 25th and still beat the market by 4.8 percentage points. A small number of hedge funds were also right about betting on VBTX as the stock returned 16.4% since Q1 (through June 25th) and outperformed the market by an even larger margin.

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

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