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Hedge Funds Are Dumping Extended Stay America Inc (STAY)

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million equity holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on March 31st, about a week after the S&P 500 Index bottomed. We at Insider Monkey have made an extensive database of more than 821 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Extended Stay America Inc (NYSE:STAY) based on those filings.

Extended Stay America Inc (NYSE:STAY) has experienced a decrease in support from the world’s most elite money managers recently. STAY was in 18 hedge funds’ portfolios at the end of March. There were 35 hedge funds in our database with STAY holdings at the end of the previous quarter. Our calculations also showed that STAY isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Parag Vora - HG Vora Capital

Parag Vora of HG Vora Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a gander at the recent hedge fund action regarding Extended Stay America Inc (NYSE:STAY).

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

At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -49% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in STAY over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is STAY A Good Stock To Buy?

The largest stake in Extended Stay America Inc (NYSE:STAY) was held by Long Pond Capital, which reported holding $90 million worth of stock at the end of September. It was followed by HG Vora Capital Management with a $73.1 million position. Other investors bullish on the company included Hawk Ridge Management, Arrowstreet Capital, and Citadel Investment Group. In terms of the portfolio weights assigned to each position HG Vora Capital Management allocated the biggest weight to Extended Stay America Inc (NYSE:STAY), around 7.13% of its 13F portfolio. Hawk Ridge Management is also relatively very bullish on the stock, designating 5.63 percent of its 13F equity portfolio to STAY.

Since Extended Stay America Inc (NYSE:STAY) has faced declining sentiment from the smart money, we can see that there was a specific group of money managers who sold off their full holdings heading into Q4. Intriguingly, Amy Minella’s Cardinal Capital sold off the biggest stake of the “upper crust” of funds watched by Insider Monkey, valued at close to $49.7 million in stock. Greg Poole’s fund, Echo Street Capital Management, also dumped its stock, about $32.9 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 17 funds heading into Q4.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Extended Stay America Inc (NYSE:STAY) but similarly valued. These stocks are First Majestic Silver Corp (NYSE:AG), Cubic Corporation (NYSE:CUB), Avanos Medical (NYSE:AVNS), and Core-Mark Holding Company, Inc. (NASDAQ:CORE). This group of stocks’ market valuations resemble STAY’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AG 13 58265 -3
CUB 17 20747 -2
AVNS 16 83135 8
CORE 19 24155 3
Average 16.25 46576 1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $47 million. That figure was $261 million in STAY’s case. Core-Mark Holding Company, Inc. (NASDAQ:CORE) is the most popular stock in this table. On the other hand First Majestic Silver Corp (NYSE:AG) is the least popular one with only 13 bullish hedge fund positions. Extended Stay America Inc (NYSE:STAY) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.4% in 2020 through June 22nd but still beat the market by 15.9 percentage points. Hedge funds were also right about betting on STAY as the stock returned 59.8% in Q2 (through June 22nd) 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.