Should You Avoid Luther Burbank Corporation (LBC)?

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Luther Burbank Corporation (NASDAQ:LBC) based on those filings.

Luther Burbank Corporation (NASDAQ:LBC) has seen a decrease in hedge fund sentiment of late. Our calculations also showed that LBC isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

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 58 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.

Michael Price MFP Investors

Michael Price of MFP Investors

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a look at the latest hedge fund action surrounding Luther Burbank Corporation (NASDAQ:LBC).

How are hedge funds trading Luther Burbank Corporation (NASDAQ:LBC)?

At the end of the first quarter, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -44% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LBC over the last 18 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, MFP Investors, managed by Michael Price, holds the biggest position in Luther Burbank Corporation (NASDAQ:LBC). MFP Investors has a $2.8 million position in the stock, comprising 0.6% of its 13F portfolio. On MFP Investors’s heels is Renaissance Technologies, with a $2.3 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Remaining peers with similar optimism encompass Ken Griffin’s Citadel Investment Group, David Harding’s Winton Capital Management and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position MFP Investors allocated the biggest weight to Luther Burbank Corporation (NASDAQ:LBC), around 0.57% of its 13F portfolio. Winton Capital Management is also relatively very bullish on the stock, designating 0.01 percent of its 13F equity portfolio to LBC.

Judging by the fact that Luther Burbank Corporation (NASDAQ:LBC) has faced bearish sentiment from the aggregate hedge fund industry, logic holds that there is a sect of money managers that decided to sell off their entire stakes by the end of the first quarter. Intriguingly, Anton Schutz’s Mendon Capital Advisors said goodbye to the biggest position of the “upper crust” of funds watched by Insider Monkey, valued at close to $2.9 million in stock, and Matthew Lindenbaum’s Basswood Capital was right behind this move, as the fund dumped about $1.1 million worth. These transactions are important to note, as total hedge fund interest fell by 4 funds by the end of the first quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Luther Burbank Corporation (NASDAQ:LBC) but similarly valued. These stocks are Tucows Inc. (NASDAQ:TCX), Castle Biosciences, Inc. (NASDAQ:CSTL), Brookfield Property REIT Inc. (NASDAQ:BPYU), and Cass Information Systems, Inc. (NASDAQ:CASS). This group of stocks’ market values resemble LBC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TCX 10 54926 2
CSTL 9 49460 1
BPYU 12 9032 -1
CASS 9 11969 -2
Average 10 31347 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 10 hedge funds with bullish positions and the average amount invested in these stocks was $31 million. That figure was $6 million in LBC’s case. Brookfield Property REIT Inc. (NASDAQ:BPYU) is the most popular stock in this table. On the other hand Castle Biosciences, Inc. (NASDAQ:CSTL) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks Luther Burbank Corporation (NASDAQ:LBC) is even less popular than CSTL. Hedge funds dodged a bullet by taking a bearish stance towards LBC. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May but managed to beat the market by 13.2 percentage points. Unfortunately LBC wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); LBC investors were disappointed as the stock returned 12.8% during the second quarter (through the end of May) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market so far in 2020.

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