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Should You Avoid Shore Bancshares, Inc. (SHBI)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Shore Bancshares, Inc. (NASDAQ:SHBI) based on that data.

Is Shore Bancshares, Inc. (NASDAQ:SHBI) a good investment now? The best stock pickers are taking a bearish view. The number of long hedge fund positions shrunk by 1 in recent months. Our calculations also showed that SHBI 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). SHBI was in 5 hedge funds’ portfolios at the end of March. There were 6 hedge funds in our database with SHBI holdings at the end of the previous quarter.

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 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 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.

Ken Griffin

Ken Griffin of Citadel Investment Group

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. Keeping this in mind let’s check out the new hedge fund action encompassing Shore Bancshares, Inc. (NASDAQ:SHBI).

How are hedge funds trading Shore Bancshares, Inc. (NASDAQ:SHBI)?

Heading into the second quarter of 2020, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SHBI over the last 18 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.

When looking at the institutional investors followed by Insider Monkey, Phil Stone’s Fourthstone LLC has the number one position in Shore Bancshares, Inc. (NASDAQ:SHBI), worth close to $13.8 million, amounting to 12.5% of its total 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, holding a $4.7 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors with similar optimism include Emanuel J. Friedman’s EJF Capital, Jeffrey Gendell’s Tontine Asset Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Fourthstone LLC allocated the biggest weight to Shore Bancshares, Inc. (NASDAQ:SHBI), around 12.52% of its 13F portfolio. EJF Capital is also relatively very bullish on the stock, earmarking 0.74 percent of its 13F equity portfolio to SHBI.

Due to the fact that Shore Bancshares, Inc. (NASDAQ:SHBI) has faced falling interest from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of hedge funds who were dropping their entire stakes in the first quarter. Intriguingly, Israel Englander’s Millennium Management cut the biggest investment of the 750 funds monitored by Insider Monkey, valued at about $0.6 million in stock. Chuck Royce’s fund, Royce & Associates, also dropped its stock, about $0 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 1 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Shore Bancshares, Inc. (NASDAQ:SHBI). These stocks are Marlin Business Services Corp. (NASDAQ:MRLN), 1st Constitution Bancorp (NASDAQ:FCCY), Diana Shipping Inc. (NYSE:DSX), and GlobalSCAPE, Inc. (NYSE:GSB). This group of stocks’ market caps are closest to SHBI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MRLN 5 45956 0
FCCY 1 1786 0
DSX 9 18354 -1
GSB 11 12519 -2
Average 6.5 19654 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.5 hedge funds with bullish positions and the average amount invested in these stocks was $20 million. That figure was $23 million in SHBI’s case. GlobalSCAPE, Inc. (NYSE:GSB) is the most popular stock in this table. On the other hand 1st Constitution Bancorp (NASDAQ:FCCY) is the least popular one with only 1 bullish hedge fund positions. Shore Bancshares, Inc. (NASDAQ:SHBI) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds 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 and surpassed the market by 13.2 percentage points. Unfortunately SHBI wasn’t nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); SHBI investors were disappointed as the stock returned -6.6% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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