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Should You Buy Stonegate Bank (SGBK)?

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

Is Stonegate Bank (NASDAQ:SGBK) a buy here? Prominent investors among those that we track are getting more optimistic, as the number of long hedge fund positions inched up by 1 lately. SGBK was in 9 hedge funds’ portfolios at the end of the third quarter of 2015, while the aggregate value of their holdings amounted to $11 million. At the end of this article we will also compare SGBK to other stocks, including Noodles & Co (NASDAQ:NDLS), Century Aluminum Co (NASDAQ:CENX), and Ashford Hospitality Prime Inc (NYSE:AHP) to get a better sense of its popularity.

To the average investor, there are a large number of gauges stock market investors put to use to value their holdings. A pair of the most under-the-radar gauges are hedge fund and insider trading signals. Our experts have shown that, historically, those who follow the top picks of the elite hedge fund managers can trounce the S&P 500 by a significant margin (see the details here).

Now, let’s take a peek at the latest action encompassing Stonegate Bank (NASDAQ:SGBK).

How are hedge funds trading Stonegate Bank (NASDAQ:SGBK)?

Heading into Q4, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, an increase of 13% from the second quarter. With hedgies’ capital changing hands, there exists a few noteworthy hedge fund managers who accumulated substantial positions in the company. Among them, Jim Simons’ Renaissance Technologies has the number one position in Stonegate Bank (NASDAQ:SGBK), worth close to $4.7 million. Sitting at the No. 2 spot is Castine Capital Management, led by Paul Magidson, Jonathan Cohen and Ostrom Enders, which holds an $2.1 million position; 1% of its 13F portfolio is allocated to the company. Other members of the smart money that hold long positions contain Israel Englander’s Millennium Management, Joseph A. Jolson’s Harvest Capital Strategies, and John Overdeck and David Siegel’s Two Sigma Advisors.

Moreover, Nine Chapters Capital Management, managed by Chao Ku, was the only fund that initiated a stake in Stonegate Bank (NASDAQ:SGBK), which was worth $0.4 million at the end of the third quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Stonegate Bank (NASDAQ:SGBK) but similarly valued. These stocks are Noodles & Co (NASDAQ:NDLS), Century Aluminum Co (NASDAQ:CENX), Ashford Hospitality Prime Inc (NYSE:AHP), and Memorial Production Partners LP (NASDAQ:MEMP). All of these stocks’ market caps match SGBK’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NDLS 7 14840 -2
CENX 14 25847 -10
AHP 14 72741 1
MEMP 4 9732 -2

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, which is higher than in SGBK’s case. Century Aluminum Co (NASDAQ:CENX) is the most popular stock in this table with a total of 14 funds reporting long positions. On the other hand Memorial Production Partners LP (NASDAQ:MEMP) is the least popular one with only 4 bullish hedge fund positions. Stonegate Bank (NASDAQ:SGBK) 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. In this regard CENX might be a better candidate to consider a long position.

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