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Is ESRT A Good Stock To Buy Now?

Abigail Fisher
·6 min read

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 817 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about Empire State Realty Trust Inc (NYSE:ESRT).

Empire State Realty Trust Inc (NYSE:ESRT) shareholders have witnessed a decrease in hedge fund sentiment of late. Empire State Realty Trust Inc (NYSE:ESRT) was in 17 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 19. Our calculations also showed that ESRT 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.

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 was 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Mason Hawkins of Southeastern Asset Management

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(you will be surprised when you click) 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. Now let's go over the key hedge fund action regarding Empire State Realty Trust Inc (NYSE:ESRT).

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

At third quarter's end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -11% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ESRT over the last 21 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

More specifically, Southeastern Asset Management was the largest shareholder of Empire State Realty Trust Inc (NYSE:ESRT), with a stake worth $93.4 million reported as of the end of September. Trailing Southeastern Asset Management was Balyasny Asset Management, which amassed a stake valued at $23 million. Citadel Investment Group, Millennium Management, and Newtyn Management 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 Southeastern Asset Management allocated the biggest weight to Empire State Realty Trust Inc (NYSE:ESRT), around 2.41% of its 13F portfolio. Hill Winds Capital is also relatively very bullish on the stock, designating 2.19 percent of its 13F equity portfolio to ESRT.

Because Empire State Realty Trust Inc (NYSE:ESRT) has witnessed declining sentiment from the aggregate hedge fund industry, we can see that there were a few money managers that decided to sell off their positions entirely by the end of the third quarter. Intriguingly, Eduardo Abush's Waterfront Capital Partners sold off the largest position of all the hedgies tracked by Insider Monkey, totaling about $12.2 million in stock, and John Khoury's Long Pond Capital was right behind this move, as the fund dumped about $7.6 million worth. These moves are interesting, as aggregate hedge fund interest was cut by 2 funds by the end of the third quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Empire State Realty Trust Inc (NYSE:ESRT) but similarly valued. These stocks are Herman Miller, Inc. (NASDAQ:MLHR), Commscope Holding Company Inc (NASDAQ:COMM), CNX Resources Corporation (NYSE:CNX), Macy's, Inc. (NYSE:M), Federal Signal Corporation (NYSE:FSS), JinkoSolar Holding Co., Ltd. (NYSE:JKS), and John Wiley & Sons Inc (NYSE:JW). This group of stocks' market valuations match ESRT's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MLHR,23,121547,1 COMM,30,482875,-2 CNX,33,581481,5 M,28,363563,-8 FSS,16,47491,4 JKS,10,42744,2 JW,17,58832,1 Average,22.4,242648,0.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.4 hedge funds with bullish positions and the average amount invested in these stocks was $243 million. That figure was $161 million in ESRT's case. CNX Resources Corporation (NYSE:CNX) is the most popular stock in this table. On the other hand JinkoSolar Holding Co., Ltd. (NYSE:JKS) is the least popular one with only 10 bullish hedge fund positions. Empire State Realty Trust Inc (NYSE:ESRT) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ESRT is 45.1. 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 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on ESRT as the stock returned 58.7% since the end of the third quarter (through 12/14) and outperformed the market by an even larger margin.

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

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