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Hedge Funds Never Been Less Bullish On South Plains Financial, Inc. (SPFI)

Debasis Saha

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of South Plains Financial, Inc. (NASDAQ:SPFI).

South Plains Financial, Inc. (NASDAQ:SPFI) was in 3 hedge funds' portfolios at the end of the first quarter of 2020. SPFI has seen a decrease in enthusiasm from smart money in recent months. There were 4 hedge funds in our database with SPFI holdings at the end of the previous quarter. Our calculations also showed that SPFI isn't among the 30 most popular stocks among hedge funds (click for Q1 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 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 44 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.

[caption id="attachment_140292" align="aligncenter" width="400"] Israel Englander of Millennium Management[/caption]

Millennium Management, Catapult Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, legendary investor Bill Miller told investors to sell 7 extremely popular recession stocks last month. So, we went through his list and recommended another stock with 100% upside potential instead. We interview hedge fund managers and ask them about their best ideas. You can watch our latest hedge fund manager interview here and find out the name of the large-cap healthcare stock that Sio Capital's Michael Castor expects to double. 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 S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let's take a look at the latest hedge fund action surrounding South Plains Financial, Inc. (NASDAQ:SPFI).

Hedge fund activity in South Plains Financial, Inc. (NASDAQ:SPFI)

Heading into the second quarter of 2020, 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. On the other hand, there were a total of 0 hedge funds with a bullish position in SPFI a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Is SPFI A Good Stock To Buy?

Among these funds, Polaris Capital Management held the most valuable stake in South Plains Financial, Inc. (NASDAQ:SPFI), which was worth $3.5 million at the end of the third quarter. On the second spot was Azora Capital which amassed $0.2 million worth of shares. Millennium Management was 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 Polaris Capital Management allocated the biggest weight to South Plains Financial, Inc. (NASDAQ:SPFI), around 0.21% of its 13F portfolio. Azora Capital is also relatively very bullish on the stock, setting aside 0.1 percent of its 13F equity portfolio to SPFI.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Fourthstone LLC. 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 SPFI as a viable investment and initiated a position in the stock.

Let's also examine hedge fund activity in other stocks similar to South Plains Financial, Inc. (NASDAQ:SPFI). We will take a look at Hometrust Bancshares Inc (NASDAQ:HTBI), Everi Holdings Inc (NYSE:EVRI), XPEL Inc. (NASDAQ:XPEL), and Chatham Lodging Trust (NYSE:CLDT). This group of stocks' market caps are similar to SPFI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HTBI,12,46600,0 EVRI,24,58914,-6 XPEL,9,21499,1 CLDT,8,19702,-2 Average,13.25,36679,-1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 13.25 hedge funds with bullish positions and the average amount invested in these stocks was $37 million. That figure was $4 million in SPFI's case. Everi Holdings Inc (NYSE:EVRI) is the most popular stock in this table. On the other hand Chatham Lodging Trust (NYSE:CLDT) is the least popular one with only 8 bullish hedge fund positions. Compared to these stocks South Plains Financial, Inc. (NASDAQ:SPFI) is even less popular than CLDT. Hedge funds dodged a bullet by taking a bearish stance towards SPFI. Our calculations showed that the top 10 most popular hedge fund stocks returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 7.9% in 2020 through May 22nd but managed to beat the market by 15.6 percentage points. Unfortunately SPFI wasn't nearly as popular as these 10 stocks (hedge fund sentiment was very bearish); SPFI investors were disappointed as the stock returned -17.3% during the second quarter (through May 22nd) 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 so far in 2020.

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

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