Investors which have thoroughly done their homework, are in the game for the long haul, and have great conviction in their ideas are more commonly referred to as value investors. Warren Buffett is one of the most accomplished money managers in this niche. In order to apprise our readers of opportunities that could result in hefty returns over the long term, we set out to find an industry that hasn’t been performing well as of late, but which has companies within its which have robust business models that could survive this cyclical trend, a characteristic which also makes them a popular choice among hedge funds. What we honed in on is the real estate operations industry, which has slid by about 22% over the past 12 months. Let’s take a look at the top five equities in this sector that hedge funds are betting big on, which could suggest they are the most likely to lead a sector revival when it materializes.
At Insider Monkey, we track more than 785 hedge funds, whose 13F filings we analyze as part of our small-cap strategy. Our research has shown that imitating a portfolio that includes the 15 most popular small-cap stocks among hedge funds can outperform the market by as much as 95 basis points per month on average (see more details here).
#5 Seritage Growth Properties (NYSE:SRG)
– Investors with Long Positions (as of December 31): 24
– Aggregate Value of Investors’ Holdings (as of December 31): $481.87 Million
During the fourth quarter, the number of hedgies in our database that were long Seritage Growth Properties (NYSE:SRG) increased by one, while the aggregate value of their holdings in the stock rose by 2.5%. The New York-based REIT’s stock has been on fire, appreciating by more than 15% so far this year. Established in 2015 by Sears Holdings Corp (NASDAQ:SHLD), Seritage’s main business plan is to create value from legacy Sears and Kmart real estate holdings and the company’s financial results for the fourth quarter reveal that it has been quite successful in that so far. Quarterly revenue came in at $59.5 million while FFO stood at $0.59. D E Shaw, founded by billionaire David Shaw, held about 518,000 shares of Seritage Growth Properties (NYSE:SRG) at the end of the fourth quarter.
#4 CBRE Group Inc (NYSE:CBG)
– Investors with Long Positions (as of December 31): 30
– Aggregate Value of Investors’ Holdings (as of December 31): $1.60 Billion
The number of hedge funds holding CBRE Group Inc (NYSE:CBG) in their portfolios dropped by two during the October-to-December period, while the aggregate value of these investments dropped by 4.2%. The stock price of the $9.44 billion commercial real estate services and investment firm is down by more than 21% in the last 12 months, in-line with the sector’s decline. The world’s largest property services company for the fifth consecutive year according to Real Capital Analytics (RCA), CBRE Group is seeking to expand its business in Japan, which is why it will double its headcount in the country to ten people for the next several years. Jeffrey Ubben‘s ValueAct Capital holds about 31.32 million shares of CBRE Group Inc (NYSE:CBG).
The top three real estate services companies to consider going long on are discussed on the next page.
#3 Jones Lang LaSalle Inc (NYSE:JLL)
– Investors with Long Positions (as of December 31): 31
– Aggregate Value of Investors’ Holdings (as of December 31): $6 Million
The number of hedge fund managers bullish on Jones Lang LaSalle Inc (NYSE:JLL) increased by six during the fourth trimester, alongside a 16.5% hike in the aggregate value of their holdings, so there was a notable boost in smart money enthusiasm. This could make it the ideal time to snap up the stock, considering it has plunged by more than 28% so far this year and is likely in a bottoming out phase. In its financial results for the fourth quarter, JLL did miss both top and bottom line estimates. However, margins expanded through all geographical segments and the company delivered record revenue and profit for the full year. Moody’s also raised its outlook on JLL’s Baa2 investment grade balance sheet to positive. Sahm Adrangi‘s Kerrisdale Capital hiked its Jones Lang LaSalle Inc (NYSE:JLL) stake by 20% during the fourth quarter.
#2 Realogy Holdings Corp (NYSE:RLGY)
– Investors with Long Positions (as of December 31): 49
– Aggregate Value of Investors’ Holdings (as of December 31): $2 Billion
Hedge funds held more than 37% of the Madison, New Jersey-based company’s outstanding shares at December’s end. Realogy Holdings Corp (NYSE:RLGY) delivered top line growth of 7% for the full 2015 year, while net income appreciated by 29% for the same period. Free cash flow also increased by 19% year-over-year. Nonetheless, shares of the company are down by 5% this year and by 23% over the past 12 months, making this another stock that appears to be significantly more attractive than it was a year ago. Larry Robbins‘ renowned Glenview Capital boosted its Realogy Holdings Corp (NYSE:RLGY) position by 8% to 6.79 million shares during the fourth quarter.
#1 NorthStar Asset Management Group Inc (NYSE:NSAM)
– Investors with Long Positions (as of December 31): 52
– Aggregate Value of Investors’ Holdings (as of December 31): $952 Million
Despite the number of investors that we track which were bullish on NorthStar Asset Management Group Inc (NYSE:NSAM) dropped by four during the fourth quarter, hedgies still held about 40% of the company’s outstanding shares. This stock has been one of the hardest hit in the sector, experiencing a sharp fall of 52% in the last 12 months. The company’s management predicted that the spin off of its European assets that took place in October would boost its stock price, since European REITs trade at higher multiples than their American counterparts, however this has yet to materialize. Analysts believe that the company’s portfolio is scattered and unfocused, which could be improved by selling more assets, something which the company doesn’t seem to be particularly keen on at this time. Robert Pohly‘s Samlyn Capital still seems upbeat about the company’s prospects as it raised its stake in NorthStar Asset Management Group Inc (NYSE:NSAM) by 12% to 9.36 million shares during the fourth quarter.