Is RLH A Good Stock To Buy Now?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 817 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Red Lion Hotels Corporation (NYSE:RLH) in this article.

Is RLH a good stock to buy now? Red Lion Hotels Corporation (NYSE:RLH) investors should be aware of a decrease in hedge fund interest in recent months. Red Lion Hotels Corporation (NYSE:RLH) was in 9 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistics is 14. Our calculations also showed that RLH 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.

Michael Price MFP Investors

Michael Price of MFP Investors

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. Now we’re going to view the new hedge fund action surrounding Red Lion Hotels Corporation (NYSE:RLH).

Do Hedge Funds Think RLH Is A Good Stock To Buy Now?

At the end of the third quarter, a total of 9 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -18% from the second quarter of 2020. By comparison, 14 hedge funds held shares or bullish call options in RLH a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

More specifically, Coliseum Capital was the largest shareholder of Red Lion Hotels Corporation (NYSE:RLH), with a stake worth $9.3 million reported as of the end of September. Trailing Coliseum Capital was Alta Fundamental Advisers, which amassed a stake valued at $7.7 million. MFP Investors, Moab Capital Partners, and Royce & Associates 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 Alta Fundamental Advisers allocated the biggest weight to Red Lion Hotels Corporation (NYSE:RLH), around 8.04% of its 13F portfolio. Moab Capital Partners is also relatively very bullish on the stock, setting aside 1.67 percent of its 13F equity portfolio to RLH.

Since Red Lion Hotels Corporation (NYSE:RLH) has experienced bearish sentiment from the smart money, we can see that there lies a certain “tier” of money managers that decided to sell off their full holdings by the end of the third quarter. Interestingly, Ken Griffin’s Citadel Investment Group cut the largest investment of the 750 funds watched by Insider Monkey, totaling close to $0.1 million in stock. Ben Levine, Andrew Manuel and Stefan Renold’s fund, LMR Partners, also sold off its stock, about $0 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest fell by 2 funds by the end of the third quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Red Lion Hotels Corporation (NYSE:RLH) but similarly valued. We will take a look at Community First Bancshares, Inc. (NASDAQ:CFBI), Diffusion Pharmaceuticals Inc. (NASDAQ:DFFN), CollPlant Biotechnologies Ltd. (NASDAQ:CLGN), Akerna Corp. (NASDAQ:KERN), Merrimack Pharmaceuticals Inc (NASDAQ:MACK), Soligenix, Inc. (NASDAQ:SNGX), and Verb Technology Company, Inc. (NASDAQ:VERB). This group of stocks’ market caps match RLH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CFBI 1 442 0
DFFN 4 2591 2
CLGN 2 195 1
KERN 3 423 -1
MACK 4 10257 1
SNGX 2 1448 -1
VERB 5 359 1
Average 3 2245 0.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 3 hedge funds with bullish positions and the average amount invested in these stocks was $2 million. That figure was $23 million in RLH’s case. Verb Technology Company, Inc. (NASDAQ:VERB) is the most popular stock in this table. On the other hand Community First Bancshares, Inc. (NASDAQ:CFBI) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Red Lion Hotels Corporation (NYSE:RLH) is more popular among hedge funds. Our overall hedge fund sentiment score for RLH is 72.3. 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 returned 32.9% in 2020 through December 8th but still managed to beat the market by 16.2 percentage points. Hedge funds were also right about betting on RLH as the stock returned 15.8% since the end of September (through 12/8) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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