Should You Buy TowneBank (TOWN)?

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: McKinley Capital Management. 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 only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Millennium Management).

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as TowneBank (NASDAQ:TOWN) but similarly valued. These stocks are OSI Systems, Inc. (NASDAQ:OSIS), Gabelli Equity Trust Inc (NYSE:GAB), Endurance International Group Hldgs Inc (NASDAQ:EIGI), and Asbury Automotive Group, Inc. (NYSE:ABG). This group of stocks’ market values are closest to TOWN’s market value.

As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $138 million. That figure was $49 million in TOWN’s case. Asbury Automotive Group, Inc. (NYSE:ABG) is the most popular stock in this table. On the other hand Gabelli Equity Trust Inc (NYSE:GAB) is the least popular one with only 4 bullish hedge fund positions. TowneBank (NASDAQ:TOWN) 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 ABG might be a better candidate to consider taking a long position in.

Disclosure: None