Hedge Funds Are Crazy About Choice Hotels International Inc (CHH): 88% Surge in Ownership

Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.

Is Choice Hotels International Inc (NYSE:CHH) the right investment to pursue these days? The smart money is becoming hopeful. The number of bullish hedge fund bets grew by 7 in recent months. CHH was in 15 hedge funds’ portfolios at the end of September. There were 8 hedge funds in our database with CHH holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Integrated Device Technology, Inc. (NASDAQ:IDTI), Medidata Solutions Inc (NASDAQ:MDSO), and Penske Automotive Group, Inc. (NYSE:PAG) to gather more data points.

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What have hedge funds been doing with Choice Hotels International Inc (NYSE:CHH)?

At the end of the third quarter, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, an 88% jump from the second quarter of 2016. By comparison, 10 hedge funds held shares or bullish call options in CHH heading into this year, which has increased by 50% over the past 3 quarters. With the smart money’s capital changing hands, there exists a few noteworthy hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Echo Street Capital Management, led by Greg Poole, holds the most valuable position in Choice Hotels International Inc (NYSE:CHH). Echo Street Capital Management has a $59.7 million position in the stock, comprising 2.5% of its 13F portfolio. The second most bullish fund manager is Citadel Investment Group, led by Ken Griffin, which holds a $25.3 million position. Remaining professional money managers that are bullish include Israel Englander’s Millennium Management, David E. Shaw’s D E Shaw, and Cliff Asness’ AQR Capital Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

As aggregate interest increased, key hedge funds were leading the bulls’ herd. Marshall Wace LLP, led by Paul Marshall and Ian Wace, established the most valuable position in Choice Hotels International Inc (NYSE:CHH). Marshall Wace LLP had $1.3 million invested in the company at the end of the quarter. Glenn Russell Dubin’s Highbridge Capital Management also made a $1 million investment in the stock during the quarter. The following funds were also among the new CHH investors: Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Michael Platt and William Reeves’ BlueCrest Capital Mgmt., and Joel Greenblatt’s Gotham Asset Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Choice Hotels International Inc (NYSE:CHH) but similarly valued. We will take a look at Integrated Device Technology, Inc. (NASDAQ:IDTI), Medidata Solutions Inc (NASDAQ:MDSO), Penske Automotive Group, Inc. (NYSE:PAG), and RLJ Lodging Trust (NYSE:RLJ). This group of stocks’ market caps resemble CHH’s market cap.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $143 million. That figure was $110 million in CHH’s case. Integrated Device Technology, Inc. (NASDAQ:IDTI) is the most popular stock in this table. On the other hand RLJ Lodging Trust (NYSE:RLJ) is the least popular one with only 9 bullish hedge fund positions. Choice Hotels International Inc (NYSE:CHH) 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 love the most relative to similar stocks. In this regard IDTI might be a better candidate to consider taking a long position in.

Disclosure: None