"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 Coastal Financial Corporation (NASDAQ:CCB).
Is Coastal Financial Corporation (NASDAQ:CCB) a healthy stock for your portfolio? Hedge funds are in an optimistic mood. The number of long hedge fund bets improved by 1 lately. Our calculations also showed that CCB isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to 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 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 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_735636" align="aligncenter" width="473"] Matthew Lindenbaum of Basswood Capital[/caption]
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. With all of this in mind let's take a glance at the recent hedge fund action regarding Coastal Financial Corporation (NASDAQ:CCB).
How are hedge funds trading Coastal Financial Corporation (NASDAQ:CCB)?
At the end of the third quarter, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of 50% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CCB over the last 17 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, EJF Capital was the largest shareholder of Coastal Financial Corporation (NASDAQ:CCB), with a stake worth $15.7 million reported as of the end of September. Trailing EJF Capital was Basswood Capital, which amassed a stake valued at $2.6 million. Renaissance Technologies 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 EJF Capital allocated the biggest weight to Coastal Financial Corporation (NASDAQ:CCB), around 2.13% of its 13F portfolio. Basswood Capital is also relatively very bullish on the stock, setting aside 0.19 percent of its 13F equity portfolio to CCB.
Consequently, key money managers were breaking ground themselves. Basswood Capital, managed by Matthew Lindenbaum, created the largest position in Coastal Financial Corporation (NASDAQ:CCB). Basswood Capital had $2.6 million invested in the company at the end of the quarter. Renaissance Technologies also made a $1.6 million investment in the stock during the quarter.
Let's go over hedge fund activity in other stocks similar to Coastal Financial Corporation (NASDAQ:CCB). We will take a look at Two River Bancorp (NASDAQ:TRCB), United Security Bancshares (NASDAQ:UBFO), CompX International Inc. (NYSE:CIX), and MMA Capital Holdings, Inc. (NASDAQ:MMAC). All of these stocks' market caps are closest to CCB's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TRCB,5,14422,2 UBFO,2,8561,0 CIX,4,13261,0 MMAC,1,2177,0 Average,3,9605,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 3 hedge funds with bullish positions and the average amount invested in these stocks was $10 million. That figure was $20 million in CCB's case. Two River Bancorp (NASDAQ:TRCB) is the most popular stock in this table. On the other hand MMA Capital Holdings, Inc. (NASDAQ:MMAC) is the least popular one with only 1 bullish hedge fund positions. Coastal Financial Corporation (NASDAQ:CCB) is not the least popular stock in this group but hedge fund interest is still below average. 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. A small number of hedge funds were also right about betting on CCB as the stock returned 12.4% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.