Should You Buy Newtek Business Services, Inc (NEWT)?

Before we spend many hours researching a company, we’d like to analyze what hedge funds and billionaire investors think of the stock first. We would like to do so because the elite investors’ consensus returns have been exceptional. The top 30 S&P 500 stocks among hedge funds at the end of September 2014 yielded an average return of 9.5% during the last 12 months ending in October 30. Sixty three percent of these 30 stocks outperformed the market. Although the elite funds occasionally have their duds, such as Micron and Anadarko Petroleum, which fell 50% and 26%, respectively, during the same time period, the hedge fund picks seem to work on average. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Newtek Business Services, Inc (NASDAQ:NEWT).

Hedge fund interest in Newtek Business Services, Inc (NASDAQ:NEWT) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Corium International Inc (NASDAQ:CORI), Townsquare Media Inc (NYSE:TSQ), and Dicerna Pharmaceuticals Inc (NASDAQ:DRNA) to gather more data points.

To most traders, hedge funds are perceived as slow, outdated investment tools of years past. While there are over 8000 funds with their doors open at the moment, Our experts choose to focus on the leaders of this group, approximately 700 funds. These investment experts have their hands on most of all hedge funds’ total asset base, and by keeping an eye on their inimitable picks, Insider Monkey has identified numerous investment strategies that have historically outrun Mr. Market. Insider Monkey’s small-cap hedge fund strategy beat the S&P 500 index by 12 percentage points per annum for a decade in their back tests.

Keeping this in mind, we’re going to check out the latest action encompassing Newtek Business Services, Inc (NASDAQ:NEWT).

How have hedgies been trading Newtek Business Services, Inc (NASDAQ:NEWT)?

At the end of the third quarter, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, unchanged 0% from the previous quarter. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Chuck Royce’s Royce & Associates has the most valuable position in Newtek Business Services, Inc (NASDAQ:NEWT), worth close to $2.1 million, comprising less than 0.1% of its total 13F portfolio. The second most bullish fund manager is Nine Chapters Capital Management, managed by Chao Ku, which holds a $0.3 million position; less than 0.1% of its 13F portfolio is allocated to the stock. Remaining peers that hold long positions encompass Ken Griffin’s Citadel Investment Group, Anton Schutz’s Mendon Capital Advisors.

Seeing as Newtek Business Services, Inc (NASDAQ:NEWT) has experienced falling interest from the aggregate hedge fund industry, it’s easy to see that there were a few hedge funds who sold off their full holdings in the third quarter. It’s worth mentioning that Israel Englander’s Millennium Management sold off the largest stake of all the hedgies monitored by Insider Monkey, comprising an estimated $0.5 million in stock, and Cliff Asness’s AQR Capital Management was right behind this move, as the fund sold off about $0.2 million worth of NEWT shares. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks similar to Newtek Business Services, Inc (NASDAQ:NEWT). We will take a look at Corium International Inc (NASDAQ:CORI), Townsquare Media Inc (NYSE:TSQ), Dicerna Pharmaceuticals Inc (NASDAQ:DRNA), and Fibrocell Science Inc (NASDAQ:FCSC). This group of stocks’ market values resemble NEWT’s market value.

As you can see these stocks had an average of 7 hedge funds with bullish positions and the average amount invested in these stocks was $33 million. That figure was a meager $3 million in NEWT’s case. Townsquare Media Inc (NYSE:TSQ) is the most popular stock in this table. On the other hand Fibrocell Science Inc (NASDAQ:FCSC) is the least popular one with only 4 bullish hedge fund positions on par with Newtek Business Services, Inc (NASDAQ:NEWT). Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, 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.