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Hedge Funds Have Never Been More Bullish On Choice Hotels International, Inc. (CHH)

Is Choice Hotels International, Inc. (NYSE:CHH) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Is Choice Hotels International, Inc. (NYSE:CHH) a buy here? Investors who are in the know are in a bullish mood. The number of bullish hedge fund bets increased by 1 lately. Our calculations also showed that CHH isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). CHH was in 20 hedge funds’ portfolios at the end of the third quarter of 2019. There were 19 hedge funds in our database with CHH holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 Russell 2000 ETFs by 40 percentage points since May 2014 (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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Tom Gayner

Tom Gayner of Markel Gayner Asset Management

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s go over the fresh hedge fund action surrounding Choice Hotels International, Inc. (NYSE:CHH).

How have hedgies been trading Choice Hotels International, Inc. (NYSE:CHH)?

Heading into the fourth quarter of 2019, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from one quarter earlier. By comparison, 18 hedge funds held shares or bullish call options in CHH a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Echo Street Capital Management was the largest shareholder of Choice Hotels International, Inc. (NYSE:CHH), with a stake worth $71.5 million reported as of the end of September. Trailing Echo Street Capital Management was GLG Partners, which amassed a stake valued at $38.3 million. Markel Gayner Asset Management, Renaissance Technologies, and Citadel Investment Group 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 Echo Street Capital Management allocated the biggest weight to Choice Hotels International, Inc. (NYSE:CHH), around 1.21% of its 13F portfolio. Markel Gayner Asset Management is also relatively very bullish on the stock, earmarking 0.25 percent of its 13F equity portfolio to CHH.

With a general bullishness amongst the heavyweights, some big names were breaking ground themselves. Renaissance Technologies, created the biggest position in Choice Hotels International, Inc. (NYSE:CHH). Renaissance Technologies had $13.6 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also initiated a $8.5 million position during the quarter. The following funds were also among the new CHH investors: Ray Dalio’s Bridgewater Associates, David E. Shaw’s D E Shaw, and Bruce Kovner’s Caxton Associates.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Choice Hotels International, Inc. (NYSE:CHH) but similarly valued. These stocks are Southwest Gas Holdings, Inc. (NYSE:SWX), MasTec, Inc. (NYSE:MTZ), Churchill Downs Incorporated (NASDAQ:CHDN), and MAXIMUS, Inc. (NYSE:MMS). All of these stocks’ market caps are similar to CHH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SWX 20 252769 4
MTZ 32 208174 4
CHDN 25 720523 0
MMS 23 223777 1
Average 25 351311 2.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $351 million. That figure was $172 million in CHH’s case. MasTec, Inc. (NYSE:MTZ) is the most popular stock in this table. On the other hand Southwest Gas Holdings, Inc. (NYSE:SWX) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks Choice Hotels International, Inc. (NYSE:CHH) is even less popular than SWX. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on CHH, though not to the same extent, as the stock returned 9.6% during the fourth quarter (through 11/30) and outperformed the market as well.

Disclosure: None. This article was originally published at Insider Monkey.

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