Should You Buy Southside Bancshares, Inc. (SBSI)?

Looking for high-potential stocks? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 7.6% in the 12 months ending November 21, with more than 51% of the stocks in the index failing to beat the benchmark. Therefore, the odds that one will pin down a winner by randomly picking a stock are less than the odds in a fair coin-tossing game. Conversely, best performing hedge funds’ 30 preferred mid-cap stocks generated a return of 18% during the same 12-month period. Coincidence? It might happen to be so, but it is unlikely. Our research covering a 17-year period indicates that hedge funds’ stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Southside Bancshares, Inc. (NASDAQ:SBSI).

Southside Bancshares, Inc. (NASDAQ:SBSI) shares didn’t see a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 6 hedge funds’ portfolios at the end of the third quarter of 2016. 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 State Bank Financial Corp (NASDAQ:STBZ), Vascular Solutions, Inc. (NASDAQ:VASC), and Fox Factory Holding Corp (NASDAQ:FOXF) to gather more data points.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

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With all of this in mind, we’re going to analyze the latest action surrounding Southside Bancshares, Inc. (NASDAQ:SBSI).

What have hedge funds been doing with Southside Bancshares, Inc. (NASDAQ:SBSI)?

At Q3’s end, a total of 6 of the hedge funds tracked by Insider Monkey were long this stock, unchanged from the previous quarter. On the other hand, there were a total of 7 hedge funds with a bullish position in SBSI at the beginning of this year. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Renaissance Technologies, one of the largest hedge funds in the world, has the number one position in Southside Bancshares, Inc. (NASDAQ:SBSI), worth close to $23.2 million, accounting for less than 0.1% of its total 13F portfolio. The second most bullish fund manager is Third Avenue Management, led by Martin Whitman, holding a $7.2 million position; the fund has 0.3% of its 13F portfolio invested in the stock. Remaining peers with similar optimism encompass Ken Fisher’s Fisher Asset Management, Israel Englander’s Millennium Management and Cliff Asness’ AQR Capital Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Springbok Capital. 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 only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was McKinley Capital Management).

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Southside Bancshares, Inc. (NASDAQ:SBSI) but similarly valued. These stocks are State Bank Financial Corp (NASDAQ:STBZ), Vascular Solutions, Inc. (NASDAQ:VASC), Fox Factory Holding Corp (NASDAQ:FOXF), and SPX Corporation (NYSE:SPXC). This group of stocks’ market caps are closest to SBSI’s market cap.

As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $67 million. That figure was $34 million in SBSI’s case. SPX Corporation (NYSE:SPXC) is the most popular stock in this table. On the other hand Fox Factory Holding Corp (NASDAQ:FOXF) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Southside Bancshares, Inc. (NASDAQ:SBSI) is even less popular than FOXF. 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.

Disclosure: none.