At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Limestone Bancorp, Inc. (NASDAQ:LMST).
Limestone Bancorp, Inc. (NASDAQ:LMST) investors should be aware of a decrease in activity from the world’s largest hedge funds recently. Our calculations also showed that LMST isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.
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 72% since March 2017 and outperformed the S&P 500 ETFs by more than 44 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
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At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this analyst’s “corona catalyst plays“. We interview hedge fund managers and ask them about their best ideas. You can watch our latest hedge fund manager interview here and find out the name of the large-cap healthcare stock that Sio Capital’s Michael Castor expects to double. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a gander at the new hedge fund action surrounding Limestone Bancorp, Inc. (NASDAQ:LMST).
What have hedge funds been doing with Limestone Bancorp, Inc. (NASDAQ:LMST)?
At Q1’s end, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of -25% from the fourth quarter of 2019. On the other hand, there were a total of 1 hedge funds with a bullish position in LMST a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Limestone Bancorp, Inc. (NASDAQ:LMST) was held by EJF Capital, which reported holding $3.4 million worth of stock at the end of September. It was followed by Fourthstone LLC with a $2.5 million position. The only other hedge fund that is bullish on the company was Mendon Capital Advisors.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Castine Capital Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because none of the 750+ hedge funds tracked by Insider Monkey identified LMST as a viable investment and initiated a position in the stock.
Let’s go over hedge fund activity in other stocks similar to Limestone Bancorp, Inc. (NASDAQ:LMST). We will take a look at BioNTech US Inc. (NASDAQ:NTGN), Maiden Holdings, Ltd. (NASDAQ:MHLD), Research Frontiers, Inc. (NASDAQ:REFR), and Hallmark Financial Services, Inc. (NASDAQ:HALL). All of these stocks’ market caps are closest to LMST’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| NTGN | 4 | 5691 | 1 |
| MHLD | 7 | 8978 | 0 |
| REFR | 2 | 123 | 1 |
| HALL | 12 | 8859 | 0 |
| Average | 6.25 | 5913 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.25 hedge funds with bullish positions and the average amount invested in these stocks was $6 million. That figure was $6 million in LMST’s case. Hallmark Financial Services, Inc. (NASDAQ:HALL) is the most popular stock in this table. On the other hand Research Frontiers, Inc. (NASDAQ:REFR) is the least popular one with only 2 bullish hedge fund positions. Limestone Bancorp, Inc. (NASDAQ:LMST) 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 7.9% in 2020 through May 22nd and surpassed the market by 15.6 percentage points. Unfortunately LMST wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); LMST investors were disappointed as the stock returned 7.7% during the second quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 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.