Is Huazhu Group Limited (NASDAQ:HTHT) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also have numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Huazhu Group Limited (NASDAQ:HTHT) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 14 hedge funds' portfolios at the end of June. 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 Toll Brothers Inc (NYSE:TOL), Popular Inc (NASDAQ:BPOP), and Syneos Health, Inc. (NASDAQ:SYNH) 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.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a gander at the recent hedge fund action regarding Huazhu Group Limited (NASDAQ:HTHT).
Hedge fund activity in Huazhu Group Limited (NASDAQ:HTHT)
At the end of the second quarter, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the first quarter of 2019. By comparison, 15 hedge funds held shares or bullish call options in HTHT a year ago. With hedge funds' sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).
The largest stake in Huazhu Group Limited (NASDAQ:HTHT) was held by Yiheng Capital, which reported holding $102.8 million worth of stock at the end of March. It was followed by AQR Capital Management with a $14.5 million position. Other investors bullish on the company included Bridgewater Associates, Marshall Wace LLP, and Fisher Asset Management.
Seeing as Huazhu Group Limited (NASDAQ:HTHT) has faced a decline in interest from the entirety of the hedge funds we track, it's easy to see that there is a sect of money managers who were dropping their entire stakes in the second quarter. At the top of the heap, Kerr Neilson's Platinum Asset Management sold off the biggest stake of the 750 funds watched by Insider Monkey, comprising close to $46.2 million in stock, and Howard Marks's Oaktree Capital Management was right behind this move, as the fund dumped about $5.8 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now take a look at hedge fund activity in other stocks similar to Huazhu Group Limited (NASDAQ:HTHT). These stocks are Toll Brothers Inc (NYSE:TOL), Popular Inc (NASDAQ:BPOP), Syneos Health, Inc. (NASDAQ:SYNH), and Hudson Pacific Properties Inc (NYSE:HPP). All of these stocks' market caps are similar to HTHT's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TOL,20,368947,-8 BPOP,30,740514,-3 SYNH,20,256102,-6 HPP,17,320087,5 Average,21.75,421413,-3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $421 million. That figure was $165 million in HTHT's case. Popular Inc (NASDAQ:BPOP) is the most popular stock in this table. On the other hand Hudson Pacific Properties Inc (NYSE:HPP) is the least popular one with only 17 bullish hedge fund positions. Compared to these stocks Huazhu Group Limited (NASDAQ:HTHT) is even less popular than HPP. Hedge funds dodged a bullet by taking a bearish stance towards HTHT. Our calculations showed that the top 20 most popular hedge fund stocks returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately HTHT wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); HTHT investors were disappointed as the stock returned -8.9% during the third quarter 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 (view the video below) among hedge funds as many of these stocks already outperformed the market so far in 2019. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.