Is Sterling Bancorp, Inc. (Southfield, MI) Going to Burn These Hedge Funds?

Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 due to various reasons. Nevertheless, the data show elite investors’ consensus picks have done well on average over the long-term. The top 20 stocks among hedge funds beat the S&P 500 Index ETF by 4 percentage points so far this year. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at Sterling Bancorp, Inc. (Southfield, MI) (NASDAQ:SBT) from the perspective of those elite funds.

Sterling Bancorp, Inc. (Southfield, MI) (NASDAQ:SBT) was in 6 hedge funds’ portfolios at the end of June. SBT investors should be aware of a decrease in hedge fund sentiment of late. There were 7 hedge funds in our database with SBT holdings at the end of the previous quarter. Our calculations also showed that SBT isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Matthew Lindenbaum Basswood Capital

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a look at the new hedge fund action regarding Sterling Bancorp, Inc. (Southfield, MI) (NASDAQ:SBT).

What have hedge funds been doing with Sterling Bancorp, Inc. (Southfield, MI) (NASDAQ:SBT)?

Heading into the third quarter of 2019, a total of 6 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in SBT over the last 16 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.

No of Hedge Funds with SBT Positions

Of the funds tracked by Insider Monkey, Matthew Lindenbaum’s Basswood Capital has the number one position in Sterling Bancorp, Inc. (Southfield, MI) (NASDAQ:SBT), worth close to $9.5 million, comprising 0.6% of its total 13F portfolio. The second most bullish fund manager is Emanuel J. Friedman of EJF Capital, with a $3.6 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish consist of Renaissance Technologies, Ken Griffin’s Citadel Investment Group and Israel Englander’s Millennium Management.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: D E Shaw. 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 none of the 750+ hedge funds tracked by Insider Monkey identified SBT as a viable investment and initiated a position in the stock.

Let’s also examine hedge fund activity in other stocks similar to Sterling Bancorp, Inc. (Southfield, MI) (NASDAQ:SBT). These stocks are Boston Omaha Corporation (NASDAQ:BOMN), Mechel PAO (NYSE:MTL), Caesarstone Ltd. (NASDAQ:CSTE), and LAIX Inc. (NYSE:LAIX). This group of stocks’ market valuations resemble SBT’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BOMN 5 242342 0
MTL 2 1365 -1
CSTE 9 23923 3
LAIX 2 2144 0
Average 4.5 67444 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 4.5 hedge funds with bullish positions and the average amount invested in these stocks was $67 million. That figure was $15 million in SBT’s case. Caesarstone Ltd. (NASDAQ:CSTE) is the most popular stock in this table. On the other hand Mechel PAO (NYSE:MTL) is the least popular one with only 2 bullish hedge fund positions. Sterling Bancorp, Inc. (Southfield, MI) (NASDAQ:SBT) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately SBT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SBT were disappointed as the stock returned -2% during the third quarter 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 many of these stocks already outperformed the market so far this year.

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