How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Middlefield Banc Corp. (NASDAQ:MBCN).
Is Middlefield Banc Corp. (NASDAQ:MBCN) a good stock to buy now? Hedge fund interest in Middlefield Banc Corp. (NASDAQ:MBCN) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that MBCN 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 MBCN to other stocks including Capital Product Partners L.P. (NASDAQ:CPLP), Hawthorn Bancshares, Inc. (NASDAQ:HWBK), and Energous Corporation (NASDAQ:WATT) to get a better sense of its popularity.
Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Fred Cummings of Elizabeth Park 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 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. With all of this in mind we’re going to take a look at the fresh hedge fund action surrounding Middlefield Banc Corp. (NASDAQ:MBCN).
What does smart money think about Middlefield Banc Corp. (NASDAQ:MBCN)?
At the end of September, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in MBCN over the last 21 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Middlefield Banc Corp. (NASDAQ:MBCN) was held by Ancora Advisors, which reported holding $7 million worth of stock at the end of September. It was followed by Elizabeth Park Capital Management with a $3.1 million position. The only other hedge fund that is bullish on the company was Renaissance Technologies.
Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren’t any hedge funds dumping their holdings during the third quarter, there weren’t any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven’t identified any viable catalysts that can attract investor attention.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Middlefield Banc Corp. (NASDAQ:MBCN) but similarly valued. These stocks are Capital Product Partners L.P. (NASDAQ:CPLP), Hawthorn Bancshares, Inc. (NASDAQ:HWBK), Energous Corporation (NASDAQ:WATT), BayCom Corp (NASDAQ:BCML), Oxford Square Capital Corp. (NASDAQ:OXSQ), Cidara Therapeutics Inc (NASDAQ:CDTX), and Intellicheck Inc. (NASDAQ:IDN). This group of stocks’ market valuations are closest to MBCN’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CPLP | 4 | 975 | 1 |
| HWBK | 1 | 1330 | 0 |
| WATT | 6 | 1511 | -2 |
| BCML | 3 | 9470 | -3 |
| OXSQ | 3 | 2094 | 1 |
| CDTX | 8 | 22230 | 2 |
| IDN | 1 | 226 | -3 |
| Average | 3.7 | 5405 | -0.6 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 3.7 hedge funds with bullish positions and the average amount invested in these stocks was $5 million. That figure was $11 million in MBCN’s case. Cidara Therapeutics Inc (NASDAQ:CDTX) is the most popular stock in this table. On the other hand Hawthorn Bancshares, Inc. (NASDAQ:HWBK) is the least popular one with only 1 bullish hedge fund positions. Middlefield Banc Corp. (NASDAQ:MBCN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MBCN is 37.3. 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. A small number of hedge funds were also right about betting on MBCN as the stock returned 10.5% since the end of the third quarter (through 11/23) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.
