In this article we will take a look at whether hedge funds think Marlin Business Services Corp. (NASDAQ:MRLN) 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.
Marlin Business Services Corp. (NASDAQ:MRLN) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 5 hedge funds' portfolios at the end of March. At the end of this article we will also compare MRLN to other stocks including 1st Constitution Bancorp (NASDAQ:FCCY), Diana Shipping Inc. (NYSE:DSX), and GlobalSCAPE, Inc. (NYSE:GSB) to get a better sense of its popularity. 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 58 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 36% through May 18th. 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="399"] Matthew Lindenbaum of Basswood Capital[/caption]
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out stocks recommended/scorned by legendary Bill Miller. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we're going to take a glance at the new hedge fund action regarding Marlin Business Services Corp. (NASDAQ:MRLN).
How are hedge funds trading Marlin Business Services Corp. (NASDAQ:MRLN)?
Heading into the second quarter of 2020, a total of 5 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the previous quarter. The graph below displays the number of hedge funds with bullish position in MRLN over the last 18 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.
The largest stake in Marlin Business Services Corp. (NASDAQ:MRLN) was held by Red Mountain Capital, which reported holding $33.5 million worth of stock at the end of September. It was followed by Basswood Capital with a $7.9 million position. Other investors bullish on the company included Renaissance Technologies, EJF Capital, and Ancora Advisors. In terms of the portfolio weights assigned to each position Red Mountain Capital allocated the biggest weight to Marlin Business Services Corp. (NASDAQ:MRLN), around 58.61% of its 13F portfolio. Basswood Capital is also relatively very bullish on the stock, earmarking 0.93 percent of its 13F equity portfolio to MRLN.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Zebra 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 EJF Capital).
Let's go over hedge fund activity in other stocks similar to Marlin Business Services Corp. (NASDAQ:MRLN). We will take a look at 1st Constitution Bancorp (NASDAQ:FCCY), Diana Shipping Inc. (NYSE:DSX), GlobalSCAPE, Inc. (NYSE:GSB), and Reliant Bancorp, Inc. (NASDAQ:RBNC). This group of stocks' market valuations resemble MRLN's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position FCCY,1,1786,0 DSX,9,18354,-1 GSB,11,12519,-2 RBNC,5,4620,3 Average,6.5,9320,0 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6.5 hedge funds with bullish positions and the average amount invested in these stocks was $9 million. That figure was $46 million in MRLN's case. GlobalSCAPE, Inc. (NYSE:GSB) is the most popular stock in this table. On the other hand 1st Constitution Bancorp (NASDAQ:FCCY) is the least popular one with only 1 bullish hedge fund positions. Marlin Business Services Corp. (NASDAQ:MRLN) 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 8.3% in 2020 through the end of May and surpassed the market by 13.2 percentage points. Unfortunately MRLN wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); MRLN investors were disappointed as the stock returned -31.8% during the second 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 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.