In this article we are going to use hedge fund sentiment as a tool and determine whether Sunstone Hotel Investors Inc (NYSE:SHO) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is SHO a good stock to buy now? Prominent investors were becoming less hopeful. The number of bullish hedge fund bets fell by 6 lately. Sunstone Hotel Investors Inc (NYSE:SHO) was in 17 hedge funds' portfolios at the end of September. The all time high for this statistic is 25. Our calculations also showed that SHO 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). There were 23 hedge funds in our database with SHO holdings at the end of June. Video: Watch our video about the top 5 most popular hedge fund stocks.
In the eyes of most traders, hedge funds are assumed to be underperforming, old investment vehicles of years past. While there are over 8000 funds in operation at the moment, We choose to focus on the crème de la crème of this club, about 850 funds. Most estimates calculate that this group of people administer bulk of the hedge fund industry's total asset base, and by keeping track of their inimitable equity investments, Insider Monkey has deciphered a few investment strategies that have historically outstripped the market. Insider Monkey's flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .
Stuart Zimmer of Zimmer Partners
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 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. Keeping this in mind we're going to take a look at the fresh hedge fund action surrounding Sunstone Hotel Investors Inc (NYSE:SHO).
Do Hedge Funds Think SHO Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of -26% from one quarter earlier. By comparison, 25 hedge funds held shares or bullish call options in SHO a year ago. With the smart money's capital changing hands, there exists a select group of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
More specifically, Long Pond Capital was the largest shareholder of Sunstone Hotel Investors Inc (NYSE:SHO), with a stake worth $93.5 million reported as of the end of September. Trailing Long Pond Capital was Renaissance Technologies, which amassed a stake valued at $17.6 million. Millennium Management, Balyasny Asset Management, and Waterfront Capital Partners 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 Long Pond Capital allocated the biggest weight to Sunstone Hotel Investors Inc (NYSE:SHO), around 3.58% of its 13F portfolio. Waterfront Capital Partners is also relatively very bullish on the stock, dishing out 2.09 percent of its 13F equity portfolio to SHO.
Since Sunstone Hotel Investors Inc (NYSE:SHO) has experienced a decline in interest from the smart money, we can see that there is a sect of hedgies that decided to sell off their positions entirely heading into Q4. Intriguingly, Greg Poole's Echo Street Capital Management dropped the biggest position of all the hedgies followed by Insider Monkey, worth about $25.2 million in stock, and Noam Gottesman's GLG Partners was right behind this move, as the fund said goodbye to about $1.4 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped by 6 funds heading into Q4.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Sunstone Hotel Investors Inc (NYSE:SHO) but similarly valued. We will take a look at Sonic Automotive Inc (NYSE:SAH), Piedmont Office Realty Trust, Inc. (NYSE:PDM), Columbia Banking System Inc (NASDAQ:COLB), Oi SA (NYSE:OIBR), CareTrust REIT Inc (NASDAQ:CTRE), NanoString Technologies Inc (NASDAQ:NSTG), and Turquoise Hill Resources Ltd (NYSE:TRQ). This group of stocks' market valuations match SHO's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SAH,17,81089,5 PDM,14,46030,3 COLB,11,77178,2 OIBR,6,70582,-1 CTRE,19,128517,0 NSTG,20,209225,3 TRQ,9,305017,-4 Average,13.7,131091,1.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.7 hedge funds with bullish positions and the average amount invested in these stocks was $131 million. That figure was $191 million in SHO's case. NanoString Technologies Inc (NASDAQ:NSTG) is the most popular stock in this table. On the other hand Oi SA (NYSE:OIBR) is the least popular one with only 6 bullish hedge fund positions. Sunstone Hotel Investors Inc (NYSE:SHO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SHO is 58.7. 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. Hedge funds were also right about betting on SHO as the stock returned 37% since the end of Q3 (through 12/14) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.