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Hedge Funds Have Never Been This Bullish On Sunstone Hotel Investors Inc (SHO)

We are still in an overall bull market and many stocks that smart money investors were piling into surged through October 17th. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained 45% and 39% respectively. Hedge funds’ top 3 stock picks returned 34.4% this year and beat the S&P 500 ETFs by 13 percentage points. Investing in index funds guarantees you average returns, not superior returns. We are looking to generate superior returns for our readers. That’s why we believe it isn’t a waste of time to check out hedge fund sentiment before you invest in a stock like Sunstone Hotel Investors Inc (NYSE:SHO).

Is Sunstone Hotel Investors Inc (NYSE:SHO) a buy right now? Hedge funds are in an optimistic mood. The number of bullish hedge fund positions rose by 1 lately. Our calculations also showed that SHO isn’t among the 30 most popular stocks among hedge funds (see the video below).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 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 40 percentage points since May 2014 through May 30, 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 25.7% through September 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Dmitry Balyasny

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let’s take a peek at the fresh hedge fund action surrounding Sunstone Hotel Investors Inc (NYSE:SHO).

How have hedgies been trading Sunstone Hotel Investors Inc (NYSE:SHO)?

At the end of the second quarter, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards SHO over the last 16 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

No of Hedge Funds with SHO Positions

The largest stake in Sunstone Hotel Investors Inc (NYSE:SHO) was held by Renaissance Technologies, which reported holding $72.1 million worth of stock at the end of March. It was followed by Long Pond Capital with a $40.3 million position. Other investors bullish on the company included Balyasny Asset Management, Echo Street Capital Management, and Millennium Management.

Consequently, some big names were breaking ground themselves. Long Pond Capital, managed by John Khoury, established the biggest position in Sunstone Hotel Investors Inc (NYSE:SHO). Long Pond Capital had $40.3 million invested in the company at the end of the quarter. Noam Gottesman’s GLG Partners also made a $1 million investment in the stock during the quarter. The other funds with brand new SHO positions are Alec Litowitz and Ross Laser’s Magnetar Capital, Bruce Kovner’s Caxton Associates LP, and Mike Vranos’s Ellington.

Let’s check out hedge fund activity in other stocks similar to Sunstone Hotel Investors Inc (NYSE:SHO). These stocks are Sanderson Farms, Inc. (NASDAQ:SAFM), SkyWest, Inc. (NASDAQ:SKYW), Amicus Therapeutics, Inc. (NASDAQ:FOLD), and Commscope Holding Company Inc (NASDAQ:COMM). This group of stocks’ market valuations match SHO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SAFM 20 449367 -1
SKYW 13 197438 0
FOLD 29 1059406 -1
COMM 20 811446 -3
Average 20.5 629414 -1.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.5 hedge funds with bullish positions and the average amount invested in these stocks was $629 million. That figure was $221 million in SHO’s case. Amicus Therapeutics, Inc. (NASDAQ:FOLD) is the most popular stock in this table. On the other hand SkyWest, Inc. (NASDAQ:SKYW) is the least popular one with only 13 bullish hedge fund positions. Sunstone Hotel Investors Inc (NYSE:SHO) 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately SHO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on SHO were disappointed as the stock returned 0.6% during the third 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 many of these stocks already outperformed the market so far this year.

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

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