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Did Hedge Funds Drop The Ball On Extended Stay America Inc (STAY)?

Debasis Saha

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 first 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 4.5 years and analyze what the smart money thinks of Extended Stay America Inc (NYSE:STAY) based on that data and determine whether they were really smart about the stock.

Extended Stay America Inc (NYSE:STAY) investors should pay attention to a decrease in enthusiasm from smart money recently. Our calculations also showed that STAY isn't among the 30 most popular stocks among hedge funds (click for Q1 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.

Today there are many gauges stock traders use to grade stocks. Some of the most useful gauges are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the top picks of the top investment managers can outperform their index-focused peers by a healthy amount (see the details here).

Sander Gerber of Hudson Bay Capital
Sander Gerber of Hudson Bay Capital

Sander Gerber of Hudson Bay Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now let's take a look at the latest hedge fund action regarding Extended Stay America Inc (NYSE:STAY).

How are hedge funds trading Extended Stay America Inc (NYSE:STAY)?

At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -49% from the previous quarter. On the other hand, there were a total of 32 hedge funds with a bullish position in STAY a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is STAY A Good Stock To Buy?
Is STAY A Good Stock To Buy?

The largest stake in Extended Stay America Inc (NYSE:STAY) was held by Long Pond Capital, which reported holding $90 million worth of stock at the end of September. It was followed by HG Vora Capital Management with a $73.1 million position. Other investors bullish on the company included Hawk Ridge Management, Arrowstreet Capital, and Citadel Investment Group. In terms of the portfolio weights assigned to each position HG Vora Capital Management allocated the biggest weight to Extended Stay America Inc (NYSE:STAY), around 7.13% of its 13F portfolio. Hawk Ridge Management is also relatively very bullish on the stock, dishing out 5.63 percent of its 13F equity portfolio to STAY.

Due to the fact that Extended Stay America Inc (NYSE:STAY) has faced a decline in interest from hedge fund managers, logic holds that there was a specific group of money managers who sold off their full holdings by the end of the first quarter. At the top of the heap, Amy Minella's Cardinal Capital cut the largest stake of the "upper crust" of funds tracked by Insider Monkey, worth close to $49.7 million in stock, and Greg Poole's Echo Street Capital Management was right behind this move, as the fund cut about $32.9 million worth. These transactions are important to note, as total hedge fund interest fell by 17 funds by the end of the first quarter.

Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Extended Stay America Inc (NYSE:STAY) but similarly valued. These stocks are First Majestic Silver Corp (NYSE:AG), Cubic Corporation (NYSE:CUB), Avanos Medical (NYSE:AVNS), and Core-Mark Holding Company, Inc. (NASDAQ:CORE). This group of stocks' market valuations match STAY's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AG,13,58265,-3 CUB,17,20747,-2 AVNS,16,83135,8 CORE,19,24155,3 Average,16.25,46576,1.5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $47 million. That figure was $261 million in STAY's case. Core-Mark Holding Company, Inc. (NASDAQ:CORE) is the most popular stock in this table. On the other hand First Majestic Silver Corp (NYSE:AG) is the least popular one with only 13 bullish hedge fund positions. Extended Stay America Inc (NYSE:STAY) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 18.6% in 2020 through July 27th but still beat the market by 17.1 percentage points. Hedge funds were also right about betting on STAY as the stock returned 57.2% since Q1 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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