How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Business First Bancshares, Inc. (NASDAQ:BFST).
Business First Bancshares, Inc. (NASDAQ:BFST) investors should be aware of an increase in activity from the world's largest hedge funds recently. Our calculations also showed that BFST isn't among the 30 most popular stocks among hedge funds.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's flagship best performing hedge funds strategy returned 91% since May 2014 and outperformed the Russell 2000 ETFs by nearly 40 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
[caption id="attachment_26286" align="aligncenter" width="359"] Jim Simons Founder of Renaissance Technologies[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. Let's review the new hedge fund action encompassing Business First Bancshares, Inc. (NASDAQ:BFST).
What does smart money think about Business First Bancshares, Inc. (NASDAQ:BFST)?
At Q3's end, a total of 2 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 100% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in BFST over the last 17 quarters. With hedgies' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
Among these funds, EJF Capital held the most valuable stake in Business First Bancshares, Inc. (NASDAQ:BFST), which was worth $14.1 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $0.2 million worth of shares.
As industrywide interest jumped, specific money managers have jumped into Business First Bancshares, Inc. (NASDAQ:BFST) headfirst. Renaissance Technologies, founded by Jim Simons, established the biggest position in Business First Bancshares, Inc. (NASDAQ:BFST). Renaissance Technologies had $0.2 million invested in the company at the end of the quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Business First Bancshares, Inc. (NASDAQ:BFST) but similarly valued. These stocks are Limoneira Company (NASDAQ:LMNR), Ranpak Holdings Corp (NYSE:PACK), Anworth Mortgage Asset Corporation (NYSE:ANH), and XPEL Inc. (NASDAQ:XPEL). This group of stocks' market valuations are closest to BFST's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position LMNR,6,3407,4 PACK,14,179385,-2 ANH,14,30078,0 XPEL,2,17793,2 Average,9,57666,1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $58 million. That figure was $14 million in BFST's case. Ranpak Holdings Corp (NYSE:PACK) is the most popular stock in this table. On the other hand XPEL Inc. (NASDAQ:XPEL) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Business First Bancshares, Inc. (NASDAQ:BFST) is even less popular than XPEL. Hedge funds dodged a bullet by taking a bearish stance towards BFST. Our calculations showed that the top 20 most popular hedge fund stocks returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately BFST wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); BFST investors were disappointed as the stock returned 1.8% during the fourth quarter (through 11/22) 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 so far in Q4.
Disclosure: None. This article was originally published at Insider Monkey.