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Were Hedge Funds Right About Piling Into Red Lion Hotels Corporation (RLH)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtRed Lion Hotels Corporation (NYSE:RLH) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Hedge fund interest in Red Lion Hotels Corporation (NYSE:RLH) shares was flat at the end of last quarter. This is usually a negative indicator. 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 Bioanalytical Systems, Inc. (NASDAQ:BASI), Village Bank and Trust Financial Corp. (NASDAQ:VBFC), and Positive Physicians Holdings, Inc. (NASDAQ:PPHI) to gather more data points. Our calculations also showed that RLH 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 today’s marketplace there are many tools stock market investors can use to analyze their stock investments. A couple of the most underrated tools are hedge fund and insider trading moves. We have shown that, historically, those who follow the best picks of the elite fund managers can outclass the S&P 500 by a superb margin (see the details here).

Michael Price MFP Investors

Michael Price of MFP Investors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to analyze the fresh hedge fund action regarding Red Lion Hotels Corporation (NYSE:RLH).

What have hedge funds been doing with Red Lion Hotels Corporation (NYSE:RLH)?

At Q1’s end, a total of 12 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in RLH over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Coliseum Capital was the largest shareholder of Red Lion Hotels Corporation (NYSE:RLH), with a stake worth $6.3 million reported as of the end of September. Trailing Coliseum Capital was Alta Fundamental Advisers, which amassed a stake valued at $3 million. Moab Capital Partners, MFP Investors, 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 4.45% of its 13F portfolio. Coliseum Capital is also relatively very bullish on the stock, designating 1.71 percent of its 13F equity portfolio to RLH.

We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Fondren Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Prescott Group Capital Management).

Let’s also examine 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 Bioanalytical Systems, Inc. (NASDAQ:BASI), Village Bank and Trust Financial Corp. (NASDAQ:VBFC), Positive Physicians Holdings, Inc. (NASDAQ:PPHI), and First Seacoast Bancorp (NASDAQ:FSEA). All of these stocks’ market caps are closest to RLH’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BASI 1 1571 0
VBFC 2 836 1
PPHI 1 10 0
FSEA 3 1212 0
Average 1.75 907 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 1.75 hedge funds with bullish positions and the average amount invested in these stocks was $1 million. That figure was $14 million in RLH’s case. First Seacoast Bancorp (NASDAQ:FSEA) is the most popular stock in this table. On the other hand Bioanalytical Systems, Inc. (NASDAQ:BASI) 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 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on RLH as the stock returned 59.6% in Q2 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.