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Hedge Funds Are Selling Premier Financial Bancorp, Inc. (PFBI)

Reymerlyn Martin

"The global economic environment is very favorable for investors. Economies are generally strong, but not too strong. Employment levels are among the strongest for many decades. Interest rates are paused at very low levels, and the risk of significant increases in the medium term seems low. Financing for transactions is freely available to good borrowers, but not in major excess. Covenants are lighter than they were five years ago, but the extreme excesses seen in the past do not seem prevalent yet today. Despite this apparent ‘goldilocks’ market environment, we continue to worry about a world where politics are polarized almost everywhere, interest rates are low globally, and equity valuations are at their peak," are the words of Brookfield Asset Management. Brookfield was right about politics as stocks experienced their second worst May since the 1960s due to escalation of trade disputes. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Premier Financial Bancorp, Inc. (NASDAQ:PFBI) and see how it was affected.

Premier Financial Bancorp, Inc. (NASDAQ:PFBI) has seen a decrease in hedge fund sentiment in recent months. Our calculations also showed that PFBI 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.

5 Most Popular Stocks Among Hedge Funds

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 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. 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.

[caption id="attachment_735636" align="aligncenter" width="1613"] 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. Keeping this in mind let's go over the fresh hedge fund action regarding Premier Financial Bancorp, Inc. (NASDAQ:PFBI).

Hedge fund activity in Premier Financial Bancorp, Inc. (NASDAQ:PFBI)

Heading into the fourth quarter of 2019, a total of 5 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the second quarter of 2019. Below, you can check out the change in hedge fund sentiment towards PFBI over the last 17 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Renaissance Technologies was the largest shareholder of Premier Financial Bancorp, Inc. (NASDAQ:PFBI), with a stake worth $4.4 million reported as of the end of September. Trailing Renaissance Technologies was Tontine Asset Management, which amassed a stake valued at $1.6 million. EJF Capital, Millennium Management, and Basswood Capital were 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 Tontine Asset Management allocated the biggest weight to Premier Financial Bancorp, Inc. (NASDAQ:PFBI), around 0.23% of its 13F portfolio. EJF Capital is also relatively very bullish on the stock, designating 0.17 percent of its 13F equity portfolio to PFBI.

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

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Premier Financial Bancorp, Inc. (NASDAQ:PFBI) but similarly valued. These stocks are Protective Insurance Corporation (NASDAQ:PTVCB), Eiger BioPharmaceuticals, Inc. (NASDAQ:EIGR), First Choice Bancorp (NASDAQ:FCBP), and The Meet Group, Inc. (NASDAQ:MEET). This group of stocks' market caps resemble PFBI's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PTVCB,8,24429,3 EIGR,24,140387,3 FCBP,3,1334,2 MEET,10,49716,-2 Average,11.25,53967,1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.25 hedge funds with bullish positions and the average amount invested in these stocks was $54 million. That figure was $8 million in PFBI's case. Eiger BioPharmaceuticals, Inc. (NASDAQ:EIGR) is the most popular stock in this table. On the other hand First Choice Bancorp (NASDAQ:FCBP) is the least popular one with only 3 bullish hedge fund positions. Premier Financial Bancorp, Inc. (NASDAQ:PFBI) 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 PFBI wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PFBI investors were disappointed as the stock returned 5.7% 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.

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