Is Marlin Business Services Corp. (NASDAQ:MRLN) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Marlin Business Services Corp. (NASDAQ:MRLN) shareholders have witnessed an increase in hedge fund interest in recent months. Our calculations also showed that MRLN 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.
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_735636" align="aligncenter" width="1613"] 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. Keeping this in mind let's take a gander at the recent hedge fund action surrounding Marlin Business Services Corp. (NASDAQ:MRLN).
What does smart money think about Marlin Business Services Corp. (NASDAQ:MRLN)?
At the end of the third quarter, a total of 5 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 67% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MRLN over the last 17 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
The largest stake in Marlin Business Services Corp. (NASDAQ:MRLN) was held by Red Mountain Capital, which reported holding $75.6 million worth of stock at the end of September. It was followed by Basswood Capital with a $17.9 million position. Other investors bullish on the company included Renaissance Technologies, Zebra Capital Management, and Marshall Wace. In terms of the portfolio weights assigned to each position Red Mountain Capital allocated the biggest weight to Marlin Business Services Corp. (NASDAQ:MRLN), around 66.71% of its 13F portfolio. Basswood Capital is also relatively very bullish on the stock, setting aside 1.31 percent of its 13F equity portfolio to MRLN.
Now, key money managers have been driving this bullishness. Zebra Capital Management, managed by Roger Ibbotson, created the biggest position in Marlin Business Services Corp. (NASDAQ:MRLN). Zebra Capital Management had $0.2 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace also made a $0.1 million investment in the stock during the quarter.
Let's check out hedge fund activity in other stocks similar to Marlin Business Services Corp. (NASDAQ:MRLN). We will take a look at MiX Telematics Limited (NYSE:MIXT), Endeavour Silver Corp. (NYSE:EXK), Nordic American Tankers Ltd (NYSE:NAT), and Graf Industrial Corp. (NYSE:GRAF). All of these stocks' market caps resemble MRLN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MIXT,10,27871,2 EXK,5,16777,-1 NAT,9,6253,0 GRAF,12,53730,0 Average,9,26158,0.25 [/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 $26 million. That figure was $103 million in MRLN's case. Graf Industrial Corp. (NYSE:GRAF) is the most popular stock in this table. On the other hand Endeavour Silver Corp. (CAN) (NYSE:EXK) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Marlin Business Services Corp. (NASDAQ:MRLN) is even less popular than EXK. Hedge funds dodged a bullet by taking a bearish stance towards MRLN. Our calculations showed that the top 20 most popular hedge fund stocks returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately MRLN wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); MRLN investors were disappointed as the stock returned -14.3% during the fourth quarter (through the end of November) 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.