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In this article we will take a look at whether hedge funds think CrossFirst Bankshares, Inc. (NASDAQ:CFB) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Is CrossFirst Bankshares (NASDAQ:CFB) a good stock to buy now? CFB investors should pay attention to a decrease in hedge fund interest recently. CrossFirst Bankshares, Inc. (NASDAQ:CFB) was in 3 hedge funds' portfolios at the end of September. The all time high for this statistics is 6. Our calculations also showed that CFB 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Emanuel Friedman of EJF Capital
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 10 most profitable companies in the world 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. With all of this in mind we're going to review the recent hedge fund action regarding CrossFirst Bankshares, Inc. (NASDAQ:CFB).
What have hedge funds been doing with CrossFirst Bankshares, Inc. (NASDAQ:CFB)?
At the end of the third quarter, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -25% from the previous quarter. By comparison, 6 hedge funds held shares or bullish call options in CFB a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, EJF Capital, managed by Emanuel J. Friedman, holds the number one position in CrossFirst Bankshares, Inc. (NASDAQ:CFB). EJF Capital has a $7.9 million position in the stock, comprising 0.7% of its 13F portfolio. Coming in second is Renaissance Technologies, founded by Jim Simons, which holds a $0.2 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. In terms of the portfolio weights assigned to each position EJF Capital allocated the biggest weight to CrossFirst Bankshares, Inc. (NASDAQ:CFB), around 0.66% of its 13F portfolio. PDT Partners is also relatively very bullish on the stock, dishing out 0.01 percent of its 13F equity portfolio to CFB.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Two Sigma Advisors. 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 750+ hedge funds tracked by Insider Monkey identified CFB as a viable investment and initiated a position in the stock.
Let's now review hedge fund activity in other stocks similar to CrossFirst Bankshares, Inc. (NASDAQ:CFB). These stocks are Boingo Wireless Inc (NASDAQ:WIFI), Tricida, Inc. (NASDAQ:TCDA), Blucora Inc (NASDAQ:BCOR), Camden National Corporation (NASDAQ:CAC), Donnelley Financial Solutions, Inc. (NYSE:DFIN), WideOpenWest, Inc. (NYSE:WOW), and Juniper Industrial Holdings, Inc. (NYSE:JIH). This group of stocks' market caps are similar to CFB's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WIFI,15,190271,0 TCDA,18,143868,-6 BCOR,18,74419,-2 CAC,14,35988,2 DFIN,18,68656,-5 WOW,9,17345,-4 JIH,22,149621,4 Average,16.3,97167,-1.6 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.3 hedge funds with bullish positions and the average amount invested in these stocks was $97 million. That figure was $8 million in CFB's case. Juniper Industrial Holdings, Inc. (NYSE:JIH) is the most popular stock in this table. On the other hand WideOpenWest, Inc. (NYSE:WOW) is the least popular one with only 9 bullish hedge fund positions. Compared to these stocks CrossFirst Bankshares, Inc. (NASDAQ:CFB) is even less popular than WOW. Our overall hedge fund sentiment score for CFB is 19. 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. Hedge funds clearly dropped the ball on CFB as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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 28.1% in 2020 through November 23rd and still beat the market by 15.4 percentage points. A small number of hedge funds were also right about betting on CFB as the stock returned 12.2% since Q3 (through November 23rd) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.