Should You Avoid Stonegate Mortgage Corp (SGM)?

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: BlueCrest Capital Mgmt. 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 700+ hedge funds tracked by Insider Monkey identified SGM as a viable investment and initiated a position in the stock.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Stonegate Mortgage Corp (NYSE:SGM) but similarly valued. We will take a look at Journal Media Group Inc (NYSE:JMG), USA Truck, Inc. (NASDAQ:USAK), Guidance Software, Inc. (NASDAQ:GUID), and Quantum Corp (NYSE:QTM). This group of stocks’ market valuations are closest to SGM’s market valuation.

As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $34 million. That figure was $53 million in SGM’s case. Quantum Corp (NYSE:QTM) is the most popular stock in this table. On the other hand Guidance Software, Inc. (NASDAQ:GUID) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Stonegate Mortgage Corp (NYSE:SGM) is even less popular than GUID. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.