U.S. Markets close in 4 hrs 1 min

Esquire Financial Holdings, Inc. (ESQ): Are Hedge Funds Right About This Stock?

Nina Todic

"Since 2006, value stocks (IVE vs IVW) have underperformed 11 of the 13 calendar years and when they beat growth, it wasn't by much. Cumulatively, through this week, it has been a 122% differential (up 52% for value vs up 174% for growth). This appears to be the longest and most severe drought for value investors since data collection began. It will go our way eventually as there are too many people paying far too much for today's darlings, both public and private. Further, the ten-year yield of 2.5% (pre-tax) isn't attractive nor is real estate. We believe the value part of the global equity market is the only place to earn solid risk adjusted returns and we believe those returns will be higher than normal," said Vilas Fund in its Q1 investor letter. We aren't sure whether value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Esquire Financial Holdings, Inc. (NASDAQ:ESQ).

Hedge fund interest in Esquire Financial Holdings, Inc. (NASDAQ:ESQ) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare ESQ to other stocks including Transcat, Inc. (NASDAQ:TRNS), Level One Bancorp, Inc. (NASDAQ:LEVL), and GlycoMimetics, Inc. (NASDAQ:GLYC) to get a better sense of its popularity. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_735636" align="aligncenter" width="473"] Matthew Lindenbaum of Basswood Capital[/caption]

Matthew Lindenbaum Basswood Capital

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now we're going to review the latest hedge fund action regarding Esquire Financial Holdings, Inc. (NASDAQ:ESQ).

How are hedge funds trading Esquire Financial Holdings, Inc. (NASDAQ:ESQ)?

At the end of the third quarter, a total of 4 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ESQ over the last 17 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to Insider Monkey's hedge fund database, Matthew Lindenbaum's Basswood Capital has the number one position in Esquire Financial Holdings, Inc. (NASDAQ:ESQ), worth close to $3.8 million, amounting to 0.3% of its total 13F portfolio. Coming in second is Mendon Capital Advisors, led by Anton Schutz, holding a $0.8 million position; 0.1% of its 13F portfolio is allocated to the company. Remaining peers that hold long positions consist of Renaissance Technologies, Brian Ashford-Russell and Tim Woolley's Polar Capital and . In terms of the portfolio weights assigned to each position Basswood Capital allocated the biggest weight to Esquire Financial Holdings, Inc. (NASDAQ:ESQ), around 0.28% of its 13F portfolio. Mendon Capital Advisors is also relatively very bullish on the stock, dishing out 0.13 percent of its 13F equity portfolio to ESQ.

Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.

Let's go over hedge fund activity in other stocks similar to Esquire Financial Holdings, Inc. (NASDAQ:ESQ). These stocks are Transcat, Inc. (NASDAQ:TRNS), Level One Bancorp, Inc. (NASDAQ:LEVL), GlycoMimetics, Inc. (NASDAQ:GLYC), and Phoenix New Media Limited (NYSE:FENG). This group of stocks' market valuations are closest to ESQ's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TRNS,8,27978,0 LEVL,2,1339,1 GLYC,7,58509,-2 FENG,7,18685,-2 Average,6,26628,-0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $27 million. That figure was $5 million in ESQ's case. Transcat, Inc. (NASDAQ:TRNS) is the most popular stock in this table. On the other hand Level One Bancorp, Inc. (NASDAQ:LEVL) is the least popular one with only 2 bullish hedge fund positions. Esquire Financial Holdings, Inc. (NASDAQ:ESQ) 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 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately ESQ wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); ESQ investors were disappointed as the stock returned -3.5% during the first two months of the fourth 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 70 percent of these stocks already outperformed the market in Q4.

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

Related Content