Is Sterling Bancorp (STL) Going to Burn These Hedge Funds?

In this article we will take a look at whether hedge funds think Sterling Bancorp (NYSE:STL) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Sterling Bancorp (NYSE:STL) investors should pay attention to a decrease in hedge fund sentiment of late. STL was in 25 hedge funds’ portfolios at the end of March. There were 30 hedge funds in our database with STL positions at the end of the previous quarter. Our calculations also showed that STL isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Matthew Lindenbaum Basswood Capital

Matthew Lindenbaum of Basswood Capital

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s check out the key hedge fund action surrounding Sterling Bancorp (NYSE:STL).

What have hedge funds been doing with Sterling Bancorp (NYSE:STL)?

At the end of the first quarter, a total of 25 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -17% from the fourth quarter of 2019. By comparison, 19 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 select group of notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

More specifically, Diamond Hill Capital was the largest shareholder of Sterling Bancorp (NYSE:STL), with a stake worth $74.9 million reported as of the end of September. Trailing Diamond Hill Capital was Basswood Capital, which amassed a stake valued at $26.5 million. Castine Capital Management, GAMCO Investors, and Gillson Capital 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 Castine Capital Management allocated the biggest weight to Sterling Bancorp (NYSE:STL), around 7.85% of its 13F portfolio. Seidman Investment Partnership is also relatively very bullish on the stock, designating 3.98 percent of its 13F equity portfolio to STL.

Since Sterling Bancorp (NYSE:STL) has witnessed a decline in interest from the aggregate hedge fund industry, we can see that there were a few fund managers that elected to cut their full holdings by the end of the first quarter. Intriguingly, Michael Kharitonov and Jon David McAuliffe’s Voleon Capital dumped the biggest stake of all the hedgies tracked by Insider Monkey, valued at an estimated $1.6 million in stock, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors was right behind this move, as the fund dumped about $1.1 million worth. These transactions are important to note, as aggregate hedge fund interest was cut by 5 funds by the end of the first quarter.

Let’s now review hedge fund activity in other stocks similar to Sterling Bancorp (NYSE:STL). These stocks are Intercept Pharmaceuticals Inc (NASDAQ:ICPT), Brookfield Business Partners L.P. (NYSE:BBU), Integer Holdings Corporation (NYSE:ITGR), and Apple Hospitality REIT Inc (NYSE:APLE). This group of stocks’ market caps are closest to STL’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ICPT 19 258760 -8
BBU 2 1459 -2
ITGR 20 88925 0
APLE 11 74704 -4
Average 13 105962 -3.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 13 hedge funds with bullish positions and the average amount invested in these stocks was $106 million. That figure was $176 million in STL’s case. Integer Holdings Corporation (NYSE:ITGR) is the most popular stock in this table. On the other hand Brookfield Business Partners L.P. (NYSE:BBU) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Sterling Bancorp (NYSE:STL) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 13.9% in 2020 through June 10th but still managed to beat the market by 14.2 percentage points. Hedge funds were also right about betting on STL, though not to the same extent, as the stock returned 25.1% in Q2 (through June 10th) and outperformed the market as well.

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