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Hedge Funds Have Never Been This Bullish On Sterling Bancorp (STL)

Before we spend days researching a stock idea we like to take a look at how hedge funds and billionaire investors recently traded that stock. Russell 2000 ETF (IWM) lagged the larger S&P 500 ETF (SPY) by more than 10 percentage points since the end of the third quarter of 2018. This means hedge funds that are allocating a higher percentage of their portfolio to small-cap stocks were probably underperforming the market. However, this also means that as small-cap stocks start to mean revert, these hedge funds will start delivering better returns than the S&P 500 Index funds. In this article, we will take a look at what hedge funds think about Sterling Bancorp (NYSE:STL).

Is Sterling Bancorp (NYSE:STL) a buy, sell, or hold? Prominent investors are becoming more confident. The number of bullish hedge fund bets improved by 2 recently. Our calculations also showed that STL isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Mario Gabelli of GAMCO Investors

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. We’re going to analyze the key hedge fund action regarding Sterling Bancorp (NYSE:STL).

What does smart money think about Sterling Bancorp (NYSE:STL)?

Heading into the fourth quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 10% from the previous quarter. By comparison, 21 hedge funds held shares or bullish call options in STL a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Diamond Hill Capital, managed by Ric Dillon, holds the number one position in Sterling Bancorp (NYSE:STL). Diamond Hill Capital has a $107.6 million position in the stock, comprising 0.6% of its 13F portfolio. Sitting at the No. 2 spot is Ken Griffin of Citadel Investment Group, with a $91.7 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Other peers with similar optimism contain Emanuel J. Friedman’s EJF Capital, Matthew Lindenbaum’s Basswood Capital and Mario Gabelli’s GAMCO Investors. In terms of the portfolio weights assigned to each position EJF Capital allocated the biggest weight to Sterling Bancorp (NYSE:STL), around 6.37% of its 13F portfolio. Castine Capital Management is also relatively very bullish on the stock, setting aside 4.89 percent of its 13F equity portfolio to STL.

As one would reasonably expect, key money managers were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, assembled the most outsized position in Sterling Bancorp (NYSE:STL). Arrowstreet Capital had $3.7 million invested in the company at the end of the quarter. Anton Schutz’s Mendon Capital Advisors also made a $2 million investment in the stock during the quarter. The following funds were also among the new STL investors: Ken Griffin’s Citadel Investment Group, Paul Tudor Jones’s Tudor Investment Corp, and Renee Yao’s Neo Ivy Capital.

Let’s now take a look at hedge fund activity in other stocks similar to Sterling Bancorp (NYSE:STL). We will take a look at Lumentum Holdings Inc (NASDAQ:LITE), Pivotal Software, Inc. (NYSE:PVTL), frontdoor, inc. (NASDAQ:FTDR), and Compania Cervecerias Unidas S.A. (NYSE:CCU). All of these stocks’ market caps match STL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
LITE 29 219330 -1
PVTL 22 275424 2
FTDR 38 735584 -2
CCU 9 32949 -1
Average 24.5 315822 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.5 hedge funds with bullish positions and the average amount invested in these stocks was $316 million. That figure was $407 million in STL’s case. frontdoor, inc. (NASDAQ:FTDR) is the most popular stock in this table. On the other hand Compania Cervecerias Unidas S.A. (NYSE:CCU) is the least popular one with only 9 bullish hedge fund positions. Sterling Bancorp (NYSE:STL) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. 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. Unfortunately STL wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); STL investors were disappointed as the stock returned 2.2% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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

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