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Here’s What Hedge Funds Think About Extended Stay America Inc (STAY)

Reymerlyn Martin

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren't usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index's returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you'd fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of 6 percentage points during the first 5 months of 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That's why we are going to go over recent hedge fund activity in Extended Stay America Inc (NASDAQ:STAY).

Extended Stay America Inc (NASDAQ:STAY) shares haven't seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 32 hedge funds' portfolios at the end of the first quarter of 2019. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as United States Steel Corporation (NYSE:X), National Health Investors Inc (NYSE:NHI), and Laureate Education, Inc. (NASDAQ:LAUR) to gather more data points.

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 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.

Christian Leone Luxor Capital

We're going to review the new hedge fund action regarding Extended Stay America Inc (NASDAQ:STAY).

How have hedgies been trading Extended Stay America Inc (NASDAQ:STAY)?

Heading into the second quarter of 2019, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards STAY over the last 15 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

STAY_jun2019

According to Insider Monkey's hedge fund database, Luxor Capital Group, managed by Christian Leone, holds the most valuable position in Extended Stay America Inc (NASDAQ:STAY). Luxor Capital Group has a $73 million position in the stock, comprising 2.4% of its 13F portfolio. Sitting at the No. 2 spot is Amy Minella of Cardinal Capital, with a $64.6 million position; 2.1% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors that hold long positions contain Jeffrey Furber's AEW Capital Management, Ken Griffin's Citadel Investment Group and Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital.

Because Extended Stay America Inc (NASDAQ:STAY) has witnessed a decline in interest from the entirety of the hedge funds we track, it's easy to see that there was a specific group of money managers that decided to sell off their entire stakes last quarter. It's worth mentioning that Jeffrey Jacobowitz's Simcoe Capital Management sold off the largest position of the 700 funds followed by Insider Monkey, totaling about $14.2 million in stock. Dmitry Balyasny's fund, Balyasny Asset Management, also said goodbye to its stock, about $9 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let's now review hedge fund activity in other stocks similar to Extended Stay America Inc (NASDAQ:STAY). We will take a look at United States Steel Corporation (NYSE:X), National Health Investors Inc (NYSE:NHI), Laureate Education, Inc. (NASDAQ:LAUR), and Investors Bancorp, Inc. (NASDAQ:ISBC). This group of stocks' market caps are similar to STAY's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position X,24,214659,0 NHI,12,120110,-1 LAUR,21,277072,-3 ISBC,24,658094,-3 Average,20.25,317484,-1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $317 million. That figure was $523 million in STAY's case. United States Steel Corporation (NYSE:X) is the most popular stock in this table. On the other hand National Health Investors Inc (NYSE:NHI) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Extended Stay America Inc (NASDAQ:STAY) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately STAY wasn't nearly as popular as these 20 stocks and hedge funds that were betting on STAY were disappointed as the stock returned -2.3% during the same period 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 in Q2.

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

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