Should I Buy Marlin Business Services Corp. (MRLN)?

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Marlin Business Services Corp. (NASDAQ:MRLN)? The smart money sentiment can provide an answer to this question.

Is Marlin Business Services Corp. (NASDAQ:MRLN) a buy here? The smart money was taking a bullish view. The number of long hedge fund bets rose by 1 lately. Marlin Business Services Corp. (NASDAQ:MRLN) was in 5 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 7. Our calculations also showed that MRLN 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). There were 4 hedge funds in our database with MRLN holdings at the end of June.

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 was 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

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 regarding Marlin Business Services Corp. (NASDAQ:MRLN).

How are hedge funds trading Marlin Business Services Corp. (NASDAQ:MRLN)?

At third quarter’s end, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from the previous quarter. On the other hand, there were a total of 5 hedge funds with a bullish position in MRLN a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Marlin Business Services Corp. (NASDAQ:MRLN) was held by Red Mountain Capital, which reported holding $20.8 million worth of stock at the end of September. It was followed by Basswood Capital with a $7.9 million position. Other investors bullish on the company included Renaissance Technologies, Millennium Management, and Ancora Advisors. In terms of the portfolio weights assigned to each position Red Mountain Capital allocated the biggest weight to Marlin Business Services Corp. (NASDAQ:MRLN), around 37.65% of its 13F portfolio. Basswood Capital is also relatively very bullish on the stock, designating 0.66 percent of its 13F equity portfolio to MRLN.

Now, key money managers have jumped into Marlin Business Services Corp. (NASDAQ:MRLN) headfirst. Millennium Management, managed by Israel Englander, assembled the largest position in Marlin Business Services Corp. (NASDAQ:MRLN). Millennium Management had $0.2 million invested in the company at the end of the quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Marlin Business Services Corp. (NASDAQ:MRLN) but similarly valued. These stocks are X Financial (NYSE:XYF), RYB Education, Inc. (NYSE:RYB), Braemar Hotels & Resorts Inc. (NYSE:BHR), Zagg Inc (NASDAQ:ZAGG), Orion Group Holdings, Inc. (NYSE:ORN), Severn Bancorp Inc (NASDAQ:SVBI), and S&W Seed Company (NASDAQ:SANW). This group of stocks’ market valuations are similar to MRLN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
XYF 3 318 1
RYB 3 5548 0
BHR 14 18067 -3
ZAGG 10 12317 -2
ORN 10 4922 3
SVBI 4 14532 0
SANW 6 53342 0
Average 7.1 15578 -0.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.1 hedge funds with bullish positions and the average amount invested in these stocks was $16 million. That figure was $32 million in MRLN’s case. Braemar Hotels & Resorts Inc. (NYSE:BHR) is the most popular stock in this table. On the other hand X Financial (NYSE:XYF) is the least popular one with only 3 bullish hedge fund positions. Marlin Business Services Corp. (NASDAQ:MRLN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MRLN is 36.5. 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 30.7% in 2020 through November 27th and still beat the market by 16.1 percentage points. A small number of hedge funds were also right about betting on MRLN as the stock returned 53.4% since the end of the third quarter (through 11/27) and outperformed the market by an even larger margin.

Follow Marlin Business Services Corp (NASDAQ:MRLN)

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