Is Merchants Bancorp (MBIN) A Good Stock To Buy?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the third quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of Merchants Bancorp (NASDAQ:MBIN) based on that data.

Is Merchants Bancorp (MBIN) a good stock to buy now? Hedge fund interest in Merchants Bancorp (NASDAQ:MBIN) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that MBIN 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). At the end of this article we will also compare MBIN to other stocks including Loral Space & Communications Inc (NASDAQ:LORL), Anterix Inc. (NASDAQ:ATEX), and Tutor Perini Corp (NYSE:TPC) to get a better sense of its popularity.

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.

Matthew Lindenbaum Basswood Capital

Matthew Lindenbaum of Basswood Capital

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 15 best blue chip stocks 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. With all of this in mind we’re going to analyze the key hedge fund action surrounding Merchants Bancorp (NASDAQ:MBIN).

How are hedge funds trading Merchants Bancorp (NASDAQ:MBIN)?

At the end of the third quarter, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the second quarter of 2020. The graph below displays the number of hedge funds with bullish position in MBIN over the last 21 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Basswood Capital, managed by Matthew Lindenbaum, holds the most valuable position in Merchants Bancorp (NASDAQ:MBIN). Basswood Capital has a $11.9 million position in the stock, comprising 1% of its 13F portfolio. On Basswood Capital’s heels is Renaissance Technologies, with a $1.1 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining professional money managers with similar optimism encompass Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Ken Griffin’s Citadel Investment Group and Paul Marshall and Ian Wace’s Marshall Wace LLP. In terms of the portfolio weights assigned to each position Basswood Capital allocated the biggest weight to Merchants Bancorp (NASDAQ:MBIN), around 0.98% of its 13F portfolio. Zebra Capital Management is also relatively very bullish on the stock, earmarking 0.4 percent of its 13F equity portfolio to MBIN.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Royce & Associates. 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 Zebra Capital Management).

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Merchants Bancorp (NASDAQ:MBIN) but similarly valued. These stocks are Loral Space & Communications Inc (NASDAQ:LORL), Anterix Inc. (NASDAQ:ATEX), Tutor Perini Corp (NYSE:TPC), Tenneco Inc (NYSE:TEN), AVITA Therapeutics, Inc. (NASDAQ:RCEL), Tanger Factory Outlet Centers Inc. (NYSE:SKT), and Playa Hotels & Resorts N.V. (NASDAQ:PLYA). This group of stocks’ market valuations are similar to MBIN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LORL 21 238623 2
ATEX 17 292271 0
TPC 13 24265 -3
TEN 18 82480 4
RCEL 5 59882 3
SKT 13 23915 -2
PLYA 16 259892 -1
Average 14.7 140190 0.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.7 hedge funds with bullish positions and the average amount invested in these stocks was $140 million. That figure was $15 million in MBIN’s case. Loral Space & Communications Inc (NASDAQ:LORL) is the most popular stock in this table. On the other hand AVITA Therapeutics, Inc. (NASDAQ:RCEL) is the least popular one with only 5 bullish hedge fund positions. Merchants Bancorp (NASDAQ:MBIN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MBIN is 41. 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. A small number of hedge funds were also right about betting on MBIN as the stock returned 35.1% since the end of the third quarter (through 12/2) and outperformed the market by an even larger margin.

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