Is Sterling Bancorp (NYSE:STL) 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, expert networks, and get tips from industry insiders. They sometimes fail miserably but historically their consensus stock picks outperformed the market after adjusting for known risk factors.
Sterling Bancorp (NYSE:STL) was in 21 hedge funds’ portfolios at the end of the third quarter of 2018. STL investors should pay attention to an increase in support from the world’s most elite money managers in recent months. There were 20 hedge funds in our database with STL holdings at the end of the previous quarter. Our calculations also showed that STL isn’t among the 30 most popular stocks among hedge funds.
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 market by 18 percentage points since May 2014 through December 3, 2018 (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.
Let’s take a look at the new hedge fund action regarding Sterling Bancorp (NYSE:STL).
Hedge fund activity in Sterling Bancorp (NYSE:STL)
At the end of the third quarter, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from the second quarter of 2018. By comparison, 15 hedge funds held shares or bullish call options in STL heading into this year. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
More specifically, EJF Capital was the largest shareholder of Sterling Bancorp (NYSE:STL), with a stake worth $65.8 million reported as of the end of September. Trailing EJF Capital was Basswood Capital, which amassed a stake valued at $63.6 million. Millennium Management, Diamond Hill Capital, and Azora Capital were also very fond of the stock, giving the stock large weights in their portfolios.
As one would reasonably expect, key hedge funds have been driving this bullishness. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, assembled the most valuable position in Sterling Bancorp (NYSE:STL). Marshall Wace LLP had $0.8 million invested in the company at the end of the quarter.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Sterling Bancorp (NYSE:STL) but similarly valued. These stocks are Texas Roadhouse Inc (NASDAQ:TXRH), Insperity Inc (NYSE:NSP), Blackbaud, Inc. (NASDAQ:BLKB), and Pegasystems Inc. (NASDAQ:PEGA). This group of stocks’ market valuations resemble STL’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| TXRH | 19 | 77259 | 3 |
| NSP | 16 | 326578 | -5 |
| BLKB | 13 | 301993 | -1 |
| PEGA | 22 | 607238 | -1 |
| Average | 17.5 | 328267 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $328 million. That figure was $397 million in STL’s case. Pegasystems Inc. (NASDAQ:PEGA) is the most popular stock in this table. On the other hand Blackbaud, Inc. (NASDAQ:BLKB) is the least popular one with only 13 bullish hedge fund positions. Sterling Bancorp (NYSE:STL) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard PEGA might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
