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Were Hedge Funds Right About Dumping CorePoint Lodging Inc. (CPLG) ?

Reymerlyn Martin

Before we spend days researching a stock idea we'd like to take a look at how hedge funds and billionaire investors recently traded that stock. S&P 500 Index ETF (SPY) lost 13.5% in the fourth quarter. Seven out of 11 industry groups in the S&P 500 Index were down more than 20% from their 52-week highs at the trough of the stock market crash. The average return of a randomly picked stock in the index was even worse. This means you (or a monkey throwing a dart) have less than an even chance of beating the market by randomly picking a stock. On the other hand, the top 15 most popular S&P 500 stocks among hedge funds not only recouped their Q4 losses but also outperformed the index by more than 3 percentage points. In this article, we will take a look at what hedge funds think about CorePoint Lodging Inc. (NYSE:CPLG).

CorePoint Lodging Inc. (NYSE:CPLG) was in 16 hedge funds' portfolios at the end of December. CPLG has experienced a decrease in enthusiasm from smart money in recent months. There were 23 hedge funds in our database with CPLG holdings at the end of the previous quarter. Our calculations also showed that CPLG isn't among the 30 most popular stocks among hedge funds.

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' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

D. E. Shaw

Let's take a glance at the fresh hedge fund action surrounding CorePoint Lodging Inc. (NYSE:CPLG).

What does the smart money think about CorePoint Lodging Inc. (NYSE:CPLG)?

At the end of the fourth quarter, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -30% from the second quarter of 2018. The graph below displays the number of hedge funds with bullish position in CPLG over the last 14 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

CPLG_may2019

Among these funds, HBK Investments held the most valuable stake in CorePoint Lodging Inc. (NYSE:CPLG), which was worth $19.1 million at the end of the fourth quarter. On the second spot was D E Shaw which amassed $13.6 million worth of shares. Moreover, Governors Lane, Indaba Capital Management, and Scion Asset Management were also bullish on CorePoint Lodging Inc. (NYSE:CPLG), allocating a large percentage of their portfolios to this stock.

Judging by the fact that CorePoint Lodging Inc. (NYSE:CPLG) has faced a decline in interest from the smart money, logic holds that there is a sect of fund managers that decided to sell off their entire stakes heading into Q3. It's worth mentioning that Jacob Doft's Highline Capital Management dumped the largest stake of the 700 funds followed by Insider Monkey, worth about $23 million in stock. Richard McGuire's fund, Marcato Capital Management, also dumped its stock, about $8.7 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 7 funds heading into Q3.

Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as CorePoint Lodging Inc. (NYSE:CPLG) but similarly valued. These stocks are Movado Group, Inc (NYSE:MOV), Falcon Minerals Corporation (NASDAQ:FLMN), H&E Equipment Services, Inc. (NASDAQ:HEES), and Ehi Car Services Ltd (NYSE:EHIC). This group of stocks' market values are closest to CPLG's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MOV,23,64412,-2 FLMN,18,187846,1 HEES,15,36756,2 EHIC,6,73106,0 Average,15.5,90530,0.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.5 hedge funds with bullish positions and the average amount invested in these stocks was $91 million. That figure was $94 million in CPLG's case. Movado Group, Inc (NYSE:MOV) is the most popular stock in this table. On the other hand Ehi Car Services Ltd (NYSE:EHIC) is the least popular one with only 6 bullish hedge fund positions. CorePoint Lodging Inc. (NYSE:CPLG) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 CPLG wasn't nearly as popular as these 15 stock and hedge funds that were betting on CPLG were disappointed as the stock returned 1.9% 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.

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