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Should You Avoid FS Bancorp, Inc. (FSBW)?

“The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak,” are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards FS Bancorp, Inc. (NASDAQ:FSBW) and see how it was affected.

Is FS Bancorp, Inc. (NASDAQ:FSBW) the right pick for your portfolio? The best stock pickers are getting less optimistic. The number of bullish hedge fund positions were cut by 2 lately. Our calculations also showed that FSBW isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). FSBW was in 5 hedge funds’ portfolios at the end of September. There were 7 hedge funds in our database with FSBW holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 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.

Chuck Royce

Chuck Royce of Royce & Associates

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind we’re going to take a gander at the recent hedge fund action regarding FS Bancorp, Inc. (NASDAQ:FSBW).

How have hedgies been trading FS Bancorp, Inc. (NASDAQ:FSBW)?

At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FSBW over the last 17 quarters. With the smart money’s sentiment swirling, there exists a few key hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

The largest stake in FS Bancorp, Inc. (NASDAQ:FSBW) was held by EJF Capital, which reported holding $10.6 million worth of stock at the end of September. It was followed by AWH Capital with a $4.8 million position. Other investors bullish on the company included Renaissance Technologies, Dorset Management, and Royce & Associates. In terms of the portfolio weights assigned to each position AWH Capital allocated the biggest weight to FS Bancorp, Inc. (NASDAQ:FSBW), around 6.02% of its 13F portfolio. EJF Capital is also relatively very bullish on the stock, setting aside 1.44 percent of its 13F equity portfolio to FSBW.

Judging by the fact that FS Bancorp, Inc. (NASDAQ:FSBW) has experienced declining sentiment from the aggregate hedge fund industry, we can see that there were a few funds that decided to sell off their full holdings by the end of the third quarter. It’s worth mentioning that John Overdeck and David Siegel’s Two Sigma Advisors sold off the biggest position of the 750 funds watched by Insider Monkey, comprising about $0.3 million in stock. Israel Englander’s fund, Millennium Management, also cut its stock, about $0.2 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 2 funds by the end of the third quarter.

Let’s now take a look at hedge fund activity in other stocks similar to FS Bancorp, Inc. (NASDAQ:FSBW). We will take a look at ChromaDex Corporation (NASDAQ:CDXC), NuCana plc (NASDAQ:NCNA), Safeguard Scientifics, Inc (NYSE:SFE), and Gravity Co., LTD. (NASDAQ:GRVY). This group of stocks’ market caps resemble FSBW’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CDXC 4 982 3
NCNA 6 11658 5
SFE 10 26279 4
GRVY 3 2578 -3
Average 5.75 10374 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 5.75 hedge funds with bullish positions and the average amount invested in these stocks was $10 million. That figure was $19 million in FSBW’s case. Safeguard Scientifics, Inc (NYSE:SFE) is the most popular stock in this table. On the other hand Gravity Co., LTD. (NASDAQ:GRVY) is the least popular one with only 3 bullish hedge fund positions. FS Bancorp, Inc. (NASDAQ:FSBW) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on FSBW as the stock returned 14.3% during the first two months of Q4 and outperformed the market by an even larger margin.

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

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