Should I Buy Spark Networks SE (LOV)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the third quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Spark Networks SE (NYSE:LOV) based on that data.

Spark Networks SE (NYSE:LOV) was in 6 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 9. LOV has seen an increase in support from the world’s most elite money managers recently. There were 5 hedge funds in our database with LOV holdings at the end of June. Our calculations also showed that LOV isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Matthew Hulsizer of PEAK6 Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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 website. With all of this in mind we’re going to take a peek at the latest hedge fund action encompassing Spark Networks SE (NYSE:LOV).

What have hedge funds been doing with Spark Networks SE (NYSE:LOV)?

At third quarter’s end, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in LOV over the last 21 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey’s hedge fund database, John H Lewis’s Osmium Partners has the biggest position in Spark Networks SE (NYSE:LOV), worth close to $11.9 million, amounting to 30% of its total 13F portfolio. On Osmium Partners’s heels is PEAK6 Capital Management, led by Matthew Hulsizer, holding a $7.6 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other peers that are bullish include J. Carlo Cannell’s Cannell Capital, Arnaud Ajdler’s Engine Capital and Donald Yacktman’s Yacktman Asset Management. In terms of the portfolio weights assigned to each position Osmium Partners allocated the biggest weight to Spark Networks SE (NYSE:LOV), around 30.05% of its 13F portfolio. Cannell Capital is also relatively very bullish on the stock, earmarking 2.26 percent of its 13F equity portfolio to LOV.

Now, some big names were leading the bulls’ herd. Renaissance Technologies, assembled the most valuable position in Spark Networks SE (NYSE:LOV). Renaissance Technologies had $0.3 million invested in the company at the end of the quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Spark Networks SE (NYSE:LOV) but similarly valued. We will take a look at Graham Corporation (NYSE:GHM), Resonant Inc. (NASDAQ:RESN), Community Financial Corp (NASDAQ:TCFC), PlayAGS, Inc. (NYSE:AGS), Diana Shipping Inc. (NYSE:DSX), vTv Therapeutics Inc (NASDAQ:VTVT), and Olympic Steel, Inc. (NASDAQ:ZEUS). This group of stocks’ market values match LOV’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.3 hedge funds with bullish positions and the average amount invested in these stocks was $13 million. That figure was $29 million in LOV’s case. PlayAGS, Inc. (NYSE:AGS) is the most popular stock in this table. On the other hand Community Financial Corp (NASDAQ:TCFC) is the least popular one with only 3 bullish hedge fund positions. Spark Networks SE (NYSE:LOV) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for LOV is 44.8. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through November 27th and surpassed the market again by 16.1 percentage points. Unfortunately LOV wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); LOV investors were disappointed as the stock returned -3.7% since the end of September (through 11/27) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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