U.S. Markets closed

Is Empire State Realty Trust Inc (ESRT) A Good Stock To Buy?

Reymerlyn Martin

Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors' favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the second quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds' top consensus picks. This year hedge funds' top 20 stock picks outperformed the S&P 500 Index by 6.6 percentage points through May 30th. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.

Is Empire State Realty Trust Inc (NYSE:ESRT) a buy here? The best stock pickers are becoming more confident. The number of long hedge fund positions improved by 1 lately. Our calculations also showed that ESRT isn't among the 30 most popular stocks among hedge funds.

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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.

CITADEL INVESTMENT GROUP

Let's take a peek at the recent hedge fund action regarding Empire State Realty Trust Inc (NYSE:ESRT).

Hedge fund activity in Empire State Realty Trust Inc (NYSE:ESRT)

At Q1's end, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the previous quarter. On the other hand, there were a total of 15 hedge funds with a bullish position in ESRT a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

ESRT_jun2019

The largest stake in Empire State Realty Trust Inc (NYSE:ESRT) was held by Renaissance Technologies, which reported holding $66.4 million worth of stock at the end of March. It was followed by Two Sigma Advisors with a $15.8 million position. Other investors bullish on the company included AEW Capital Management, GLG Partners, and Millennium Management.

Now, some big names have been driving this bullishness. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, established the most valuable position in Empire State Realty Trust Inc (NYSE:ESRT). Marshall Wace LLP had $2.5 million invested in the company at the end of the quarter. Gavin Saitowitz and Cisco J. del Valle's Springbok Capital also made a $2.3 million investment in the stock during the quarter. The only other fund with a new position in the stock is Ken Griffin's Citadel Investment Group.

Let's now take a look at hedge fund activity in other stocks similar to Empire State Realty Trust Inc (NYSE:ESRT). These stocks are nVent Electric plc (NYSE:NVT), Acuity Brands, Inc. (NYSE:AYI), The Stars Group Inc. (NASDAQ:TSG), and InterXion Holding NV (NYSE:INXN). This group of stocks' market valuations resemble ESRT's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NVT,25,920355,-3 AYI,29,795548,2 TSG,44,902595,4 INXN,25,741670,-3 Average,30.75,840042,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 30.75 hedge funds with bullish positions and the average amount invested in these stocks was $840 million. That figure was $162 million in ESRT's case. The Stars Group Inc. (NASDAQ:TSG) is the most popular stock in this table. On the other hand nVent Electric plc (NYSE:NVT) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Empire State Realty Trust Inc (NYSE:ESRT) is even less popular than NVT. Hedge funds dodged a bullet by taking a bearish stance towards ESRT. Our calculations showed that the top 20 most popular hedge fund stocks returned 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately ESRT wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); ESRT investors were disappointed as the stock returned 0.9% during the same time frame 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 13 of these stocks already outperformed the market so far in the second quarter.

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

Related Content