Should You Buy Heritage Commerce Corp. (HTBK)?

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Heritage Commerce Corp. (NASDAQ:HTBK).

Is Heritage Commerce Corp. (NASDAQ:HTBK) a healthy stock for your portfolio? Investors who are in the know are buying. The number of long hedge fund bets improved by 1 recently. Our calculations also showed that HTBK isn’t among the 30 most popular stocks among hedge funds (see the video below). HTBK was in 8 hedge funds’ portfolios at the end of June. There were 7 hedge funds in our database with HTBK 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.

If you’d ask most investors, hedge funds are assumed to be worthless, old investment vehicles of years past. While there are over 8000 funds trading today, Our researchers hone in on the masters of this group, around 750 funds. These money managers orchestrate the majority of the hedge fund industry’s total capital, and by watching their inimitable equity investments, Insider Monkey has figured out numerous investment strategies that have historically outperformed the broader indices. Insider Monkey’s flagship hedge fund strategy outstripped the S&P 500 index by around 5 percentage points annually since its inception in May 2014. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 25.7% since February 2017 (through September 30th) even though the market was up more than 33% during the same period. We just shared a list of 10 short targets in our latest quarterly update .

Paul Marshall Marshall Wace

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s review the fresh hedge fund action encompassing Heritage Commerce Corp. (NASDAQ:HTBK).

Hedge fund activity in Heritage Commerce Corp. (NASDAQ:HTBK)

Heading into the third quarter of 2019, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from one quarter earlier. By comparison, 8 hedge funds held shares or bullish call options in HTBK a year ago. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

No of Hedge Funds with HTBK Positions

The largest stake in Heritage Commerce Corp. (NASDAQ:HTBK) was held by Renaissance Technologies, which reported holding $12.8 million worth of stock at the end of March. It was followed by Millennium Management with a $4.5 million position. Other investors bullish on the company included Marshall Wace LLP, Two Sigma Advisors, and D E Shaw.

As one would reasonably expect, key money managers have jumped into Heritage Commerce Corp. (NASDAQ:HTBK) headfirst. Winton Capital Management, managed by David Harding, initiated the largest position in Heritage Commerce Corp. (NASDAQ:HTBK). Winton Capital Management had $0.2 million invested in the company at the end of the quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Heritage Commerce Corp. (NASDAQ:HTBK) but similarly valued. These stocks are The First Bancshares, Inc. (NASDAQ:FBMS), Agilysys, Inc. (NASDAQ:AGYS), Ducommun Incorporated (NYSE:DCO), and Sterling Bancorp, Inc. (Southfield, MI) (NASDAQ:SBT). This group of stocks’ market values match HTBK’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FBMS 7 28083 -1
AGYS 13 122986 -1
DCO 11 68597 2
SBT 6 15458 -1
Average 9.25 58781 -0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.25 hedge funds with bullish positions and the average amount invested in these stocks was $59 million. That figure was $29 million in HTBK’s case. Agilysys, Inc. (NASDAQ:AGYS) is the most popular stock in this table. On the other hand Sterling Bancorp, Inc. (Southfield, MI) (NASDAQ:SBT) is the least popular one with only 6 bullish hedge fund positions. Heritage Commerce Corp. (NASDAQ:HTBK) 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately HTBK wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); HTBK investors were disappointed as the stock returned -3% during the third 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 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.

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