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Is RILY A Good Stock To Buy Now?

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Abigail Fisher
·6 min read
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In this article we will analyze whether B. Riley Financial, Inc. (NASDAQ:RILY) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There's no better way to get these firms' immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.

Is RILY a good stock to buy now? B. Riley Financial, Inc. (NASDAQ:RILY) investors should be aware of an increase in hedge fund sentiment recently. B. Riley Financial, Inc. (NASDAQ:RILY) was in 19 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 16. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that RILY isn't among the 30 most popular stocks among hedge funds (click for Q3 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 66 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Paul Singer ELLIOTT MANAGEMENT
Paul Singer ELLIOTT MANAGEMENT

Paul Singer of Elliott Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we're going to take a look at the latest hedge fund action regarding B. Riley Financial, Inc. (NASDAQ:RILY).

Do Hedge Funds Think RILY Is A Good Stock To Buy Now?

At Q3's end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 19% from the previous quarter. By comparison, 16 hedge funds held shares or bullish call options in RILY a year ago. With hedge funds' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

The largest stake in B. Riley Financial, Inc. (NASDAQ:RILY) was held by Nokomis Capital, which reported holding $26.3 million worth of stock at the end of September. It was followed by Royce & Associates with a $22.7 million position. Other investors bullish on the company included Elliott Investment Management, Tudor Investment Corp, and Azora Capital. In terms of the portfolio weights assigned to each position Nokomis Capital allocated the biggest weight to B. Riley Financial, Inc. (NASDAQ:RILY), around 12.21% of its 13F portfolio. Cruiser Capital Advisors is also relatively very bullish on the stock, setting aside 1.16 percent of its 13F equity portfolio to RILY.

Consequently, key hedge funds have been driving this bullishness. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, established the largest position in B. Riley Financial, Inc. (NASDAQ:RILY). Marshall Wace LLP had $0.6 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also initiated a $0.6 million position during the quarter. The other funds with brand new RILY positions are Michael Gelband's ExodusPoint Capital and Peter Algert's Algert Global.

Let's now review hedge fund activity in other stocks similar to B. Riley Financial, Inc. (NASDAQ:RILY). We will take a look at Pampa Energia S.A. (NYSE:PAM), Century Aluminum Co (NASDAQ:CENX), Denny's Corporation (NASDAQ:DENN), Ebix Inc (NASDAQ:EBIX), Lumber Liquidators Holdings Inc (NYSE:LL), G-III Apparel Group, Ltd. (NASDAQ:GIII), and Albireo Pharma, Inc. (NASDAQ:ALBO). All of these stocks' market caps are closest to RILY's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PAM,8,30973,-2 CENX,11,35940,-1 DENN,20,65004,-3 EBIX,13,50750,-4 LL,14,61499,5 GIII,16,45316,6 ALBO,22,220205,10 Average,14.9,72812,1.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.9 hedge funds with bullish positions and the average amount invested in these stocks was $73 million. That figure was $89 million in RILY's case. Albireo Pharma, Inc. (NASDAQ:ALBO) is the most popular stock in this table. On the other hand Pampa Energia S.A. (NYSE:PAM) is the least popular one with only 8 bullish hedge fund positions. B. Riley Financial, Inc. (NASDAQ:RILY) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RILY is 77.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on RILY as the stock returned 43.4% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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Disclosure: None. This article was originally published at Insider Monkey.

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