In this article we will take a look at whether hedge funds think Nicholas Financial, Inc. (NASDAQ:NICK) 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.
Nicholas Financial, Inc. (NASDAQ:NICK) investors should pay attention to an increase in enthusiasm from smart money in recent months. NICK was in 3 hedge funds' portfolios at the end of the first quarter of 2020. There were 2 hedge funds in our database with NICK holdings at the end of the previous quarter. Our calculations also showed that NICK 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_27209" align="aligncenter" width="399"] Jim Simons Founder of Renaissance Technologies[/caption]
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. 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 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 review the recent hedge fund action regarding Nicholas Financial, Inc. (NASDAQ:NICK).
How are hedge funds trading Nicholas Financial, Inc. (NASDAQ:NICK)?
At the end of the first quarter, a total of 3 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 50% from the fourth quarter of 2019. By comparison, 2 hedge funds held shares or bullish call options in NICK a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Magnolia Capital Fund held the most valuable stake in Nicholas Financial, Inc. (NASDAQ:NICK), which was worth $11.9 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $2.9 million worth of shares. Almitas Capital 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 Magnolia Capital Fund allocated the biggest weight to Nicholas Financial, Inc. (NASDAQ:NICK), around 1.87% of its 13F portfolio. Almitas Capital is also relatively very bullish on the stock, designating 1.35 percent of its 13F equity portfolio to NICK.
Now, specific money managers were leading the bulls' herd. Almitas Capital, managed by Ron Mass, initiated the largest position in Nicholas Financial, Inc. (NASDAQ:NICK). Almitas Capital had $0.6 million invested in the company at the end of the quarter.
Let's now take a look at hedge fund activity in other stocks similar to Nicholas Financial, Inc. (NASDAQ:NICK). We will take a look at BlueLinx Holdings Inc. (NYSE:BXC), Sunesis Pharmaceuticals, Inc. (NASDAQ:SNSS), Oncternal Therapeutics, Inc. (NASDAQ:ONCT), and Hunt Companies Finance Trust, Inc. (NYSE:HCFT). This group of stocks' market caps match NICK's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BXC,6,19499,-1 SNSS,11,13098,-1 ONCT,2,271,0 HCFT,5,1422,1 Average,6,8573,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 6 hedge funds with bullish positions and the average amount invested in these stocks was $9 million. That figure was $15 million in NICK's case. Sunesis Pharmaceuticals, Inc. (NASDAQ:SNSS) is the most popular stock in this table. On the other hand Oncternal Therapeutics, Inc. (NASDAQ:ONCT) is the least popular one with only 2 bullish hedge fund positions. Nicholas Financial, Inc. (NASDAQ:NICK) 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 7.9% in 2020 through May 22nd and surpassed the market by 15.6 percentage points. Unfortunately NICK wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); NICK investors were disappointed as the stock returned -2.7% 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.