Where Do Hedge Funds Stand On Heritage Commerce Corp. (HTBK)?

Many prominent investors, including Warren Buffett, David Tepper and Stan Druckenmiller, have been cautious regarding the current bull market and missed out as the stock market reached another high in recent weeks. On the other hand, technology hedge funds weren’t timid and registered double digit market beating gains. Financials, energy and industrial stocks aren’t doing great but many of the stocks that delivered strong returns since March are still going very strong and hedge funds actually increased their positions in these stocks. In this article we will find out how hedge fund sentiment to Heritage Commerce Corp. (NASDAQ:HTBK) changed recently.

Is Heritage Commerce Corp. (NASDAQ:HTBK) a worthy stock to buy now? Hedge funds were in an optimistic mood. The number of bullish hedge fund bets went up by 1 recently. Heritage Commerce Corp. (NASDAQ:HTBK) was in 12 hedge funds’ portfolios at the end of September. The all time high for this statistics is 13. Our calculations also showed that HTBK isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Phil Stone of Fourthstone LLC

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let’s check out the recent hedge fund action surrounding Heritage Commerce Corp. (NASDAQ:HTBK).

Do Hedge Funds Think HTBK Is A Good Stock To Buy Now?

At third quarter’s end, a total of 12 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 9% from the previous quarter. By comparison, 10 hedge funds held shares or bullish call options in HTBK a year ago. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

Is HTBK A Good Stock To Buy?

More specifically, Renaissance Technologies was the largest shareholder of Heritage Commerce Corp. (NASDAQ:HTBK), with a stake worth $4.2 million reported as of the end of September. Trailing Renaissance Technologies was Millennium Management, which amassed a stake valued at $2.1 million. Two Sigma Advisors, JCSD Capital, and D E Shaw were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position JCSD Capital allocated the biggest weight to Heritage Commerce Corp. (NASDAQ:HTBK), around 2.07% of its 13F portfolio. Fourthstone LLC is also relatively very bullish on the stock, designating 1.07 percent of its 13F equity portfolio to HTBK.

Consequently, some big names have jumped into Heritage Commerce Corp. (NASDAQ:HTBK) headfirst. Fourthstone LLC, managed by Phil Stone, assembled the biggest position in Heritage Commerce Corp. (NASDAQ:HTBK). Fourthstone LLC had $1.3 million invested in the company at the end of the quarter. Cliff Asness’s AQR Capital Management also initiated a $0.2 million position during the quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Heritage Commerce Corp. (NASDAQ:HTBK) but similarly valued. These stocks are Donegal Group Inc (NASDAQ:DGICA), FRP Holdings Inc (NASDAQ:FRPH), Sterling Construction Company, Inc. (NASDAQ:STRL), American Vanguard Corp. (NYSE:AVD), NexTier Oilfield Solutions Inc. (NYSE:NEX), Select Energy Services, Inc. (NYSE:WTTR), and Kosmos Energy Ltd (NYSE:KOS). This group of stocks’ market valuations match HTBK’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
DGICA 7 11570 3
FRPH 9 31054 0
STRL 15 55160 0
AVD 9 7160 -1
NEX 22 142385 -2
WTTR 10 14886 -3
KOS 11 8123 -1
Average 11.9 38620 -0.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.9 hedge funds with bullish positions and the average amount invested in these stocks was $39 million. That figure was $16 million in HTBK’s case. NexTier Oilfield Solutions Inc. (NYSE:NEX) is the most popular stock in this table. On the other hand Donegal Group Inc (NASDAQ:DGICA) is the least popular one with only 7 bullish hedge fund positions. Heritage Commerce Corp. (NASDAQ:HTBK) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for HTBK is 50.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. Hedge funds were also right about betting on HTBK as the stock returned 37.2% since the end of Q3 (through 12/8) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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