Is XHR A Good Stock To Buy Now?

With the third-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the fourth quarter. One of these stocks was Xenia Hotels & Resorts Inc (NYSE:XHR).

Is XHR a good stock to buy now? Prominent investors were turning less bullish. The number of long hedge fund positions retreated by 1 recently. Xenia Hotels & Resorts Inc (NYSE:XHR) was in 9 hedge funds’ portfolios at the end of September. The all time high for this statistics is 16. Our calculations also showed that XHR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 66 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Donald Sussman of Paloma Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. 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. With all of this in mind we’re going to check out the new hedge fund action encompassing Xenia Hotels & Resorts Inc (NYSE:XHR).

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

At the end of September, a total of 9 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from the previous quarter. The graph below displays the number of hedge funds with bullish position in XHR over the last 21 quarters. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

Among these funds, Balyasny Asset Management held the most valuable stake in Xenia Hotels & Resorts Inc (NYSE:XHR), which was worth $9.9 million at the end of the third quarter. On the second spot was Long Pond Capital which amassed $9.3 million worth of shares. OZ Management, Renaissance Technologies, and Two Sigma Advisors were 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 Long Pond Capital allocated the biggest weight to Xenia Hotels & Resorts Inc (NYSE:XHR), around 0.36% of its 13F portfolio. Balyasny Asset Management is also relatively very bullish on the stock, dishing out 0.07 percent of its 13F equity portfolio to XHR.

Because Xenia Hotels & Resorts Inc (NYSE:XHR) has experienced declining sentiment from the entirety of the hedge funds we track, logic holds that there was a specific group of hedgies that decided to sell off their positions entirely heading into Q4. Intriguingly, Greg Poole’s Echo Street Capital Management sold off the biggest stake of the “upper crust” of funds followed by Insider Monkey, valued at an estimated $5.4 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund cut about $0.7 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 1 funds heading into Q4.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Xenia Hotels & Resorts Inc (NYSE:XHR) but similarly valued. These stocks are Cornerstone Building Brands, Inc. (NYSE:CNR), Standard Motor Products, Inc. (NYSE:SMP), Gravity Co., LTD. (NASDAQ:GRVY), Zogenix, Inc. (NASDAQ:ZGNX), Seacoast Banking Corporation of Florida (NASDAQ:SBCF), ePlus Inc. (NASDAQ:PLUS), and StoneX Group Inc. (NASDAQ:SNEX). This group of stocks’ market values are similar to XHR’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.3 hedge funds with bullish positions and the average amount invested in these stocks was $107 million. That figure was $29 million in XHR’s case. Zogenix, Inc. (NASDAQ:ZGNX) is the most popular stock in this table. On the other hand Gravity Co., LTD. (NASDAQ:GRVY) is the least popular one with only 3 bullish hedge fund positions. Xenia Hotels & Resorts Inc (NYSE:XHR) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for XHR is 29.4. 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. 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 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on XHR as the stock returned 72.3% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.

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