Is Choice Hotels International, Inc. (NYSE:CHH) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably but historically their consensus stock picks outperformed the market after adjusting for known risk factors.
Choice Hotels International, Inc. (NYSE:CHH) has experienced an increase in support from the world's most elite money managers recently. Our calculations also showed that CHH 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 32 percentage points since May 2014 through March 12, 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.
We're going to take a gander at the recent hedge fund action surrounding Choice Hotels International, Inc. (NYSE:CHH).
Hedge fund activity in Choice Hotels International, Inc. (NYSE:CHH)
At Q4's end, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CHH over the last 14 quarters. With hedgies' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Greg Poole's Echo Street Capital Management has the biggest position in Choice Hotels International, Inc. (NYSE:CHH), worth close to $109.2 million, corresponding to 2.8% of its total 13F portfolio. Sitting at the No. 2 spot is Renaissance Technologies, managed by Jim Simons, which holds a $40.7 million position; less than 0.1%% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors that hold long positions contain Noam Gottesman's GLG Partners, Paul Marshall and Ian Wace's Marshall Wace LLP and Joel Greenblatt's Gotham Asset Management.
Now, some big names have jumped into Choice Hotels International, Inc. (NYSE:CHH) headfirst. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, assembled the largest position in Choice Hotels International, Inc. (NYSE:CHH). Marshall Wace LLP had $11.2 million invested in the company at the end of the quarter. Matthew Tewksbury's Stevens Capital Management also made a $0.3 million investment in the stock during the quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Choice Hotels International, Inc. (NYSE:CHH) but similarly valued. These stocks are Highwoods Properties Inc (NYSE:HIW), American Greetings Corporation (NYSE:AM), Hawaiian Electric Industries, Inc. (NYSE:HE), and Tribune Media Company (NYSE:TRCO). This group of stocks' market caps resemble CHH's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HIW,17,182549,3 AM,7,18668,-4 HE,13,162017,2 TRCO,40,1421487,1 Average,19.25,446180,0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $446 million. That figure was $227 million in CHH's case. Tribune Media Company (NYSE:TRCO) is the most popular stock in this table. On the other hand American Greetings Corporation (NYSE:AM) is the least popular one with only 7 bullish hedge fund positions. Choice Hotels International, Inc. (NYSE:CHH) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately CHH wasn't nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); CHH investors were disappointed as the stock returned 14.6% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.
Disclosure: None. This article was originally published at Insider Monkey.