Is HALL A Good Stock To Buy Now?

With the third-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the fourth quarter. One of these stocks was Hallmark Financial Services, Inc. (NASDAQ:HALL).

Is HALL a good stock to buy now? Hallmark Financial Services, Inc. (NASDAQ:HALL) investors should pay attention to a decrease in activity from the world’s largest hedge funds recently. Hallmark Financial Services, Inc. (NASDAQ:HALL) was in 7 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 12. Our calculations also showed that HALL 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 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.

Peter Algert of Algert Global

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 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. 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 recent hedge fund action surrounding Hallmark Financial Services, Inc. (NASDAQ:HALL).

How have hedgies been trading Hallmark Financial Services, Inc. (NASDAQ:HALL)?

Heading into the fourth quarter of 2020, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -30% from the previous quarter. The graph below displays the number of hedge funds with bullish position in HALL 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.

More specifically, Renaissance Technologies was the largest shareholder of Hallmark Financial Services, Inc. (NASDAQ:HALL), with a stake worth $1 million reported as of the end of September. Trailing Renaissance Technologies was Royce & Associates, which amassed a stake valued at $0.3 million. Arrowstreet Capital, Millennium Management, and Two Sigma Advisors were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Algert Global allocated the biggest weight to Hallmark Financial Services, Inc. (NASDAQ:HALL), around 0.02% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, earmarking 0.0032 percent of its 13F equity portfolio to HALL.

Because Hallmark Financial Services, Inc. (NASDAQ:HALL) has witnessed falling interest from the smart money, logic holds that there is a sect of hedgies that elected to cut their full holdings in the third quarter. Intriguingly, Cliff Asness’s AQR Capital Management dumped the largest investment of the “upper crust” of funds watched by Insider Monkey, valued at an estimated $3.1 million in stock, and Donald Sussman’s Paloma Partners was right behind this move, as the fund sold off about $0.2 million worth. These moves are interesting, as total hedge fund interest fell by 3 funds in the third quarter.

Let’s also examine hedge fund activity in other stocks similar to Hallmark Financial Services, Inc. (NASDAQ:HALL). We will take a look at LSB Industries, Inc. (NYSE:LXU), First Seacoast Bancorp (NASDAQ:FSEA), ECMOHO Limited (NASDAQ:MOHO), inTEST Corporation (NYSE:INTT), SilverBow Resorces, Inc. (NYSE:SBOW), SCYNEXIS Inc (NASDAQ:SCYX), and TESSCO Technologies, Inc. (NASDAQ:TESS). All of these stocks’ market caps are closest to HALL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LXU 7 4494 -3
FSEA 2 208 0
MOHO 1 134 0
INTT 3 5510 -1
SBOW 6 19383 -1
SCYX 3 2731 -4
TESS 3 3818 -4
Average 3.6 5183 -1.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 3.6 hedge funds with bullish positions and the average amount invested in these stocks was $5 million. That figure was $2 million in HALL’s case. LSB Industries, Inc. (NYSE:LXU) is the most popular stock in this table. On the other hand ECMOHO Limited (NASDAQ:MOHO) is the least popular one with only 1 bullish hedge fund positions. Hallmark Financial Services, Inc. (NASDAQ:HALL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HALL is 69.5. 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. 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 31.6% in 2020 through December 2nd and still beat the market by 16 percentage points. Hedge funds were also right about betting on HALL as the stock returned 31.3% since the end of Q3 (through 12/2) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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