Is QTS Stock A Buy or Sell?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the fourth quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of QTS Realty Trust Inc (NYSE:QTS) based on that data.

Is QTS stock a buy? Hedge funds were turning less bullish. The number of bullish hedge fund positions were cut by 2 lately. QTS Realty Trust Inc (NYSE:QTS) was in 23 hedge funds’ portfolios at the end of December. The all time high for this statistic is 29. Our calculations also showed that QTS isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 S&P 500 ETFs by 124 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 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.

Dmitry Balyasny of Balyasny Asset Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. 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. Now we’re going to view the key hedge fund action encompassing QTS Realty Trust Inc (NYSE:QTS).

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

At the end of the fourth quarter, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -8% from the previous quarter. The graph below displays the number of hedge funds with bullish position in QTS over the last 22 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).

The largest stake in QTS Realty Trust Inc (NYSE:QTS) was held by Zimmer Partners, which reported holding $214.6 million worth of stock at the end of December. It was followed by V3 Capital with a $68.8 million position. Other investors bullish on the company included Waterfront Capital Partners, Millennium Management, and Land & Buildings Investment Management. In terms of the portfolio weights assigned to each position V3 Capital allocated the biggest weight to QTS Realty Trust Inc (NYSE:QTS), around 13.82% of its 13F portfolio. LDR Capital is also relatively very bullish on the stock, earmarking 7.45 percent of its 13F equity portfolio to QTS.

Because QTS Realty Trust Inc (NYSE:QTS) has faced a decline in interest from hedge fund managers, we can see that there exists a select few money managers that slashed their positions entirely last quarter. It’s worth mentioning that Sander Gerber’s Hudson Bay Capital Management cut the largest stake of all the hedgies monitored by Insider Monkey, worth about $60.5 million in stock, and Joshua Friedman and Mitchell Julis’s Canyon Capital Advisors was right behind this move, as the fund dumped about $35.4 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as QTS Realty Trust Inc (NYSE:QTS) but similarly valued. We will take a look at Daqo New Energy Corp (NYSE:DQ), FTI Consulting, Inc. (NYSE:FCN), Shell Midstream Partners LP (NYSE:SHLX), nVent Electric plc (NYSE:NVT), National Beverage Corp. (NASDAQ:FIZZ), Artisan Partners Asset Management Inc (NYSE:APAM), and The Ensign Group, Inc. (NASDAQ:ENSG). This group of stocks’ market caps are closest to QTS’s market cap.

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As you can see these stocks had an average of 20.1 hedge funds with bullish positions and the average amount invested in these stocks was $237 million. That figure was $397 million in QTS’s case. nVent Electric plc (NYSE:NVT) is the most popular stock in this table. On the other hand Shell Midstream Partners LP (NYSE:SHLX) is the least popular one with only 7 bullish hedge fund positions. QTS Realty Trust Inc (NYSE:QTS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for QTS is 61.6. 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 positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and beat the market again by 0.9 percentage points. Unfortunately QTS wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on QTS were disappointed as the stock returned 7.1% since the end of December (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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