Is Summit Hotel Properties Inc (INN) Going to Burn These Hedge Funds?

Billionaire hedge fund managers such as Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.

Summit Hotel Properties Inc (NYSE:INN) has seen a decrease in support from the world’s most elite money managers of late. INN was in 8 hedge funds’ portfolios at the end of the third quarter of 2015. There were 10 hedge funds in our database with INN holdings at the end of the previous quarter. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity, but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as NxStage Medical, Inc. (NASDAQ:NXTM), and Banner Corporation (NASDAQ:BANR) to gather more data points.

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Now, we’re going to review the key action encompassing Summit Hotel Properties Inc (NYSE:INN).

How have hedgies been trading Summit Hotel Properties Inc (NYSE:INN)?

Heading into Q4, a total of 8 of the hedge funds tracked by Insider Monkey were bullish on this stock, a decline of 20% from the previous quarter. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

According to Insider Monkey’s hedge fund database, Forward Management, managed by J. Alan Reid, Jr., holds the number one position in Summit Hotel Properties Inc (NYSE:INN). The fund has a $29.8 million position in the stock, comprising 2.4% of its 13F portfolio. Sitting at the No. 2 spot is Legg Mason Capital Management, managed by Bill Miller, which holds a $6.6 million position; the fund has 0.1% of its 13F portfolio invested in the stock. Some other professional money managers with similar optimism include Jim Simons’s Renaissance Technologies, Ken Fisher’s Fisher Asset Management and Cliff Asness’s AQR Capital Management.

Because Summit Hotel Properties Inc (NYSE:INN) has witnessed bearish sentiment from the aggregate hedge fund industry, we can see that there were a few fund managers that decided to sell off their entire stakes by the end of the third quarter. Intriguingly, Israel Englander’s Millennium Management sold off the largest investment of all the hedgies tracked by Insider Monkey, totaling an estimated $6.3 million in stock. Millennium Management Subsidiary’s fund, Decade Capital Management, also dropped its holding, about $1.9 million worth of INN shares. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest dropped 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 Summit Hotel Properties Inc (NYSE:INN) but similarly valued. We will take a look at NxStage Medical, Inc. (NASDAQ:NXTM), Banner Corporation (NASDAQ:BANR) and Cooper-Standard Holdings Inc (NYSE:CPS). This group of stocks’ market valuations are similar to INN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NXTM 20 209625 -10
BANR 17 100374 5
CPS 14 380291 -3

As you can see these stocks had an average of 17 hedge funds with bullish positions and the average amount invested in these stocks was $230 million. That figure was $42 million in INN’s case. NxStage Medical, Inc. (NASDAQ:NXTM) is the most popular stock in this table, with 20 funds betting on it, while Cooper-Standard Holdings Inc (NYSE:CPS) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Summit Hotel Properties Inc (NYSE:INN) is even less popular than CPS. Considering that hedge funds aren’t fond of this stock in relation to other companies analyzed in this article, it may be a good idea to analyze it in detail and understand why the smart money isn’t behind this stock. This isn’t necessarily bad news. Although it is possible that hedge funds may think the stock is overpriced and view the stock as a short candidate, they may not be very familiar with the bullish thesis. In either case more research is warranted.