Is LM Funding America (LMFA) A Good Stock To Buy?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks aren’t doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to LM Funding America, Inc. (NASDAQ:LMFA) changed recently.

LM Funding America, Inc. (NASDAQ:LMFA) has seen an increase in enthusiasm from smart money of late. LM Funding America, Inc. (NASDAQ:LMFA) was in 3 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 2. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that LMFA 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.

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 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 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.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

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 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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. Now let’s analyze the latest hedge fund action regarding LM Funding America, Inc. (NASDAQ:LMFA).

How are hedge funds trading LM Funding America, Inc. (NASDAQ:LMFA)?

Heading into the fourth quarter of 2020, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of 50% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LMFA over the last 21 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Citadel Investment Group, managed by Ken Griffin, holds the most valuable position in LM Funding America, Inc. (NASDAQ:LMFA). Citadel Investment Group has a $0.2 million position in the stock, comprising less than 0.1%% of its 13F portfolio. Coming in second is Hal Mintz of Sabby Capital, with a $0.1 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. In terms of the portfolio weights assigned to each position Sabby Capital allocated the biggest weight to LM Funding America, Inc. (NASDAQ:LMFA), around 0.01% of its 13F portfolio. Citadel Investment Group is also relatively very bullish on the stock, earmarking 0 percent of its 13F equity portfolio to LMFA.

Consequently, key hedge funds have been driving this bullishness. Citadel Investment Group, managed by Ken Griffin, assembled the largest position in LM Funding America, Inc. (NASDAQ:LMFA). Citadel Investment Group had $0.2 million invested in the company at the end of the quarter. John Overdeck and David Siegel’s Two Sigma Advisors also initiated a $0 million position during the quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as LM Funding America, Inc. (NASDAQ:LMFA) but similarly valued. We will take a look at Rexahn Pharmaceuticals, Inc. (NASDAQ:REXN), Marin Software Inc (NASDAQ:MRIN), Synthetic Biologics Inc (NYSE:SYN), Tengasco, Inc. (NYSE:TGC), Iconix Brand Group Inc (NASDAQ:ICON), ENSERVCO Corporation (NYSE:ENSV), and Cellect Biotechnology Ltd. (NASDAQ:APOP). All of these stocks’ market caps resemble LMFA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
REXN 1 485 0
MRIN 1 539 0
SYN 2 437 0
TGC 1 170 0
ICON 2 593 1
ENSV 2 31 1
APOP 1 466 0
Average 1.4 389 0.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 1.4 hedge funds with bullish positions and the average amount invested in these stocks was $0 million. That figure was $0 million in LMFA’s case. Synthetic Biologics Inc (NYSE:SYN) is the most popular stock in this table. On the other hand Rexahn Pharmaceuticals, Inc. (NASDAQ:REXN) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks LM Funding America, Inc. (NASDAQ:LMFA) is more popular among hedge funds. Our overall hedge fund sentiment score for LMFA is 86. 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 28.1% in 2020 through November 23rd and still beat the market by 15.4 percentage points. Unfortunately LMFA wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on LMFA were disappointed as the stock returned -6.2% since the end of the third quarter (through 11/23) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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