Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. After several tireless days we have finished crunching the numbers from nearly 835 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms’ equity portfolios as of December 31st. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards Extended Stay America Inc (NYSE:STAY).
Extended Stay America Inc (NYSE:STAY) has experienced an increase in hedge fund interest in recent months. STAY was in 35 hedge funds’ portfolios at the end of December. There were 27 hedge funds in our database with STAY holdings at the end of the previous quarter. Our calculations also showed that STAY isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 more than 41 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 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Sander Gerber of Hudson Bay Capital
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a peek at the fresh hedge fund action surrounding Extended Stay America Inc (NYSE:STAY).
How are hedge funds trading Extended Stay America Inc (NASDAQ:STAY)?
At the end of the fourth quarter, a total of 35 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 30% from the previous quarter. By comparison, 32 hedge funds held shares or bullish call options in STAY a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in Extended Stay America Inc (NASDAQ:STAY) was held by Long Pond Capital, which reported holding $99.8 million worth of stock at the end of September. It was followed by Citadel Investment Group with a $59.7 million position. Other investors bullish on the company included Cardinal Capital, Arrowstreet Capital, and HG Vora Capital Management. In terms of the portfolio weights assigned to each position HG Vora Capital Management allocated the biggest weight to Extended Stay America Inc (NASDAQ:STAY), around 3.83% of its 13F portfolio. Long Pond Capital is also relatively very bullish on the stock, earmarking 2.55 percent of its 13F equity portfolio to STAY.
Consequently, some big names were breaking ground themselves. HG Vora Capital Management, managed by Parag Vora, created the biggest position in Extended Stay America Inc (NASDAQ:STAY). HG Vora Capital Management had $40.9 million invested in the company at the end of the quarter. Sander Gerber’s Hudson Bay Capital Management also made a $20.2 million investment in the stock during the quarter. The following funds were also among the new STAY investors: Paul Marshall and Ian Wace’s Marshall Wace LLP, Anthony Joseph Vaccarino’s North Fourth Asset Management, and Simon Sadler’s Segantii Capital.
Let’s now take a look at hedge fund activity in other stocks similar to Extended Stay America Inc (NASDAQ:STAY). These stocks are Urban Outfitters, Inc. (NASDAQ:URBN), The Simply Good Foods Company (NASDAQ:SMPL), Proto Labs Inc (NYSE:PRLB), and SITE Centers Corp. (NYSE:SITC). All of these stocks’ market caps resemble STAY’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| URBN | 34 | 170783 | 0 |
| SMPL | 34 | 242325 | 12 |
| PRLB | 10 | 33102 | 0 |
| SITC | 22 | 112447 | 8 |
| Average | 25 | 139664 | 5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $140 million. That figure was $496 million in STAY’s case. Urban Outfitters, Inc. (NASDAQ:URBN) is the most popular stock in this table. On the other hand Proto Labs Inc (NYSE:PRLB) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Extended Stay America Inc (NASDAQ:STAY) is more popular among hedge funds. 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 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th and still beat the market by 5.5 percentage points. Unfortunately STAY wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on STAY were disappointed as the stock returned -47.4% during the first two and a half months of 2020 (through March 25th) 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 most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
