Hedge funds and other investment firms that we track, manage billions of dollars of their wealthy clients’ money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth depends on it. Regardless of the various methods used by elite investors like David Tepper and Dan Loeb, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space.
Hedge fund interest in Veritex Holdings Inc (NASDAQ:VBTX) shares’ was flat at the end of the 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 Mediwound Ltd (NASDAQ:MDWD), First Security Group Inc (NASDAQ:FSGI), and Numerex Corp. (NASDAQ:NMRX) to gather more data points.
In the eyes of most traders, hedge funds are assumed to be unimportant, old investment vehicles of yesteryear. While there are over 8000 funds trading at the moment, Our researchers hone in on the leaders of this club, about 700 funds. These money managers shepherd most of the smart money’s total capital, and by observing their finest equity investments, Insider Monkey has figured out a few investment strategies that have historically surpassed the market. Insider Monkey’s small-cap hedge fund strategy exceeded the S&P 500 index by 12 percentage points a year for a decade in their back tests.
With all of this in mind, we’re going to analyze the latest action encompassing Veritex Holdings Inc (NASDAQ:VBTX).
Hedge fund activity in Veritex Holdings Inc (NASDAQ:VBTX)
Heading into Q4, a total of 6 of the hedge funds tracked by Insider Monkey held long positions in this stock, flat over the previous quarter. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Basswood Capital, managed by Matthew Lindenbaum, holds the biggest position in Veritex Holdings Inc (NASDAQ:VBTX). Basswood Capital has a $13.8 million position in the stock, comprising 0.7% of its 13F portfolio. The second largest stake is held by Forest Hill Capital, led by Mark Lee, holding a $7.3 million position; 0.7% of its 13F portfolio is allocated to the company. Remaining professional money managers that are bullish consist of Paul Magidson, Jonathan Cohen. And Ostrom Enders’ Castine Capital Management, Fred Cummings’ Elizabeth Park Capital Management and Israel Englander’s Millennium Management.
We view hedge fund selling in the stock unfavorable, but in this case, there was only a single hedge fund selling its entire position: Ulysses 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 here because only one of the 700+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Millennium Management).
Let’s now take a look at hedge fund activity in other stocks similar to Veritex Holdings Inc (NASDAQ:VBTX). These stocks are Mediwound Ltd (NASDAQ:MDWD), First Security Group Inc (NASDAQ:FSGI), Numerex Corp. (NASDAQ:NMRX), and CARDIOME PHARMA CORP (NASDAQ:CRME). This group of stocks’ market valuations matches Veritex Holdings Inc (NASDAQ:VBTX)’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see, these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $29 million. CARDIOME PHARMA CORP (NASDAQ:CRME) is the most popular stock in this table, whereas Mediwound Ltd (NASDAQ:MDWD) is the least popular one. Veritex Holdings Inc (NASDAQ:VBTX) 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. In this regard CARDIOME PHARMA CORP (NASDAQ:CRME) might be a better candidate to consider a long position.