Is CLNC A Good Stock To Buy Now?

In this article you are going to find out whether hedge funds think Colony Credit Real Estate, Inc. (NYSE:CLNC) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is CLNC a good stock to buy now? Colony Credit Real Estate, Inc. (NYSE:CLNC) has experienced an increase in enthusiasm from smart money of late. Colony Credit Real Estate, Inc. (NYSE:CLNC) was in 10 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 11. Our calculations also showed that CLNC isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.

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’ 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 S&P 500 ETFs by 66 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 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.

TUDOR INVESTMENT CORP

Paul Tudor Jones of Tudor Investment Corp

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind we’re going to analyze the recent hedge fund action regarding Colony Credit Real Estate, Inc. (NYSE:CLNC).

Do Hedge Funds Think Colony Credit Real Estate, Inc. (NYSE:CLNC) Is A Good Stock To Buy Now?

At Q3’s end, a total of 10 of the hedge funds tracked by Insider Monkey were long this stock, a change of 67% from the previous quarter. By comparison, 7 hedge funds held shares or bullish call options in CLNC a year ago. With hedgies’ sentiment swirling, there exists a select group of notable hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).

The largest stake in Colony Credit Real Estate, Inc. (NYSE:CLNC) was held by Nut Tree Capital, which reported holding $29.8 million worth of stock at the end of September. It was followed by Balyasny Asset Management with a $4.4 million position. Other investors bullish on the company included Arrowstreet Capital, Brigade Capital, and D E Shaw. In terms of the portfolio weights assigned to each position Nut Tree Capital allocated the biggest weight to Colony Credit Real Estate, Inc. (NYSE:CLNC), around 9.02% of its 13F portfolio. Balyasny Asset Management is also relatively very bullish on the stock, designating 0.03 percent of its 13F equity portfolio to CLNC.

Consequently, specific money managers were breaking ground themselves. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, established the most valuable position in Colony Credit Real Estate, Inc. (NYSE:CLNC). Arrowstreet Capital had $0.9 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also initiated a $0.4 million position during the quarter. The other funds with brand new CLNC positions are Israel Englander’s Millennium Management, Donald Sussman’s Paloma Partners, and Ken Griffin’s Citadel Investment Group.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Colony Credit Real Estate, Inc. (NYSE:CLNC) but similarly valued. We will take a look at Neenah Inc. (NYSE:NP), Clearwater Paper Corp (NYSE:CLW), ImmunoGen, Inc. (NASDAQ:IMGN), Betterware de Mexico, S.A. de C.V. (NASDAQ:BWMX), Jumia Technologies AG (NYSE:JMIA), Precigen, Inc. (NASDAQ:PGEN), and Global Medical REIT Inc. (NYSE:GMRE). This group of stocks’ market values are closest to CLNC’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NP 11 21432 -2
CLW 13 50476 -1
IMGN 18 129732 -2
BWMX 2 4322 0
JMIA 9 13534 1
PGEN 12 36166 -3
GMRE 6 13544 -1
Average 10.1 38458 -1.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.1 hedge funds with bullish positions and the average amount invested in these stocks was $38 million. That figure was $37 million in CLNC’s case. ImmunoGen, Inc. (NASDAQ:IMGN) is the most popular stock in this table. On the other hand Betterware de Mexico, S.A. de C.V. (NASDAQ:BWMX) is the least popular one with only 2 bullish hedge fund positions. Colony Credit Real Estate, Inc. (NYSE:CLNC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CLNC is 61.3. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on CLNC as the stock returned 57.8% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.

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