Should I Buy Saga Communications, Inc. (SGA)?

·6 min read

Most investors tend to think that hedge funds and other asset managers are worthless, as they cannot beat even simple index fund portfolios. In fact, most people expect hedge funds to compete with and outperform the bull market that we have witnessed in recent years. However, hedge funds are generally partially hedged and aim at delivering attractive risk-adjusted returns rather than following the ups and downs of equity markets hoping that they will outperform the broader market. Our research shows that certain hedge funds do have great stock picking skills (and we can identify these hedge funds in advance pretty accurately), so let’s take a glance at the smart money sentiment towards Saga Communications, Inc. (NASDAQ:SGA).

Saga Communications, Inc. (NASDAQ:SGA) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 3 hedge funds' portfolios at the end of March. Our calculations also showed that SGA isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). At the end of this article we will also compare SGA to other stocks including Aravive, Inc. (NASDAQ:ARAV), Twin Disc, Incorporated (NASDAQ:TWIN), and Partners Bancorp (NASDAQ:PTRS) to get a better sense of its popularity.

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 monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Chuck Royce
Chuck Royce

Chuck Royce of Royce & Associates

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund wants to buy this $28 biotech stock for $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now let's view the recent hedge fund action surrounding Saga Communications, Inc. (NASDAQ:SGA).

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

At the end of the first quarter, a total of 3 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. By comparison, 3 hedge funds held shares or bullish call options in SGA a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Saga Communications, Inc. (NASDAQ:SGA), which was worth $3.7 million at the end of the fourth quarter. On the second spot was Minerva Advisors which amassed $3.7 million worth of shares. Royce & Associates 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 Minerva Advisors allocated the biggest weight to Saga Communications, Inc. (NASDAQ:SGA), around 2.02% of its 13F portfolio. Royce & Associates is also relatively very bullish on the stock, setting aside 0.02 percent of its 13F equity portfolio to SGA.

Earlier we told you that the aggregate hedge fund interest in the stock was unchanged and we view this as a negative development. Even though there weren't any hedge funds dumping their holdings during the third quarter, there weren't any hedge funds initiating brand new positions. This indicates that hedge funds, at the very best, perceive this stock as dead money and they haven't identified any viable catalysts that can attract investor attention.

Let's also examine hedge fund activity in other stocks similar to Saga Communications, Inc. (NASDAQ:SGA). We will take a look at Aravive, Inc. (NASDAQ:ARAV), Twin Disc, Incorporated (NASDAQ:TWIN), Partners Bancorp (NASDAQ:PTRS), MMA Capital Holdings Inc. (NASDAQ:MMAC), Code Chain New Continent Limited (NASDAQ:CCNC), Aileron Therapeutics, Inc. (NASDAQ:ALRN), and Exela Technologies, Inc. (NASDAQ:XELA). This group of stocks' market values match SGA's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ARAV,6,3665,0 TWIN,5,25838,0 PTRS,2,993,1 MMAC,4,8482,-1 CCNC,3,657,3 ALRN,6,13846,5 XELA,8,10142,4 Average,4.9,9089,1.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 4.9 hedge funds with bullish positions and the average amount invested in these stocks was $9 million. That figure was $11 million in SGA's case. Exela Technologies, Inc. (NASDAQ:XELA) is the most popular stock in this table. On the other hand Partners Bancorp (NASDAQ:PTRS) is the least popular one with only 2 bullish hedge fund positions. Saga Communications, Inc. (NASDAQ:SGA) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SGA is 31.3. 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. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 17.2% in 2021 through June 11th and surpassed the market again by 3.3 percentage points. Unfortunately SGA wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); SGA investors were disappointed as the stock returned -3.5% since the end of March (through 6/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2021.

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

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