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Were Hedge Funds Right About Souring On Getty Realty Corp. (GTY)?

Looking for stocks with high upside potential? Just follow the big players within the hedge fund industry. Why should you do so? Let’s take a brief look at what statistics have to say about hedge funds’ stock picking abilities to illustrate. The Standard and Poor’s 500 Index returned approximately 26% in 2019 (through November 22nd). Conversely, hedge funds’ 20 preferred S&P 500 stocks generated a return of nearly 35% during the same period, with the majority of these stock picks outperforming the broader market benchmark. Coincidence? It might happen to be so, but it is unlikely. Our research covering the last 18 years indicates that hedge funds’ consensus stock picks generate superior risk-adjusted returns. That’s why we believe it is wise to check hedge fund activity before you invest your time or your savings on a stock like Getty Realty Corp. (NYSE:GTY).

Getty Realty Corp. (NYSE:GTY) has experienced a decrease in activity from the world’s largest hedge funds recently. Our calculations also showed that GTY isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David Harding

David Harding of Winton Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December we recommended Adams Energy  based on an under-the-radar fund manager’s investor letter and the stock gained 20 percent. We’re going to take a look at the new hedge fund action surrounding Getty Realty Corp. (NYSE:GTY).

What have hedge funds been doing with Getty Realty Corp. (NYSE:GTY)?

Heading into the fourth quarter of 2019, a total of 9 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -10% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in GTY over the last 17 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

More specifically, Renaissance Technologies was the largest shareholder of Getty Realty Corp. (NYSE:GTY), with a stake worth $81.4 million reported as of the end of September. Trailing Renaissance Technologies was Two Sigma Advisors, which amassed a stake valued at $3 million. AQR Capital Management, Citadel Investment Group, and Winton Capital Management 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 Zebra Capital Management allocated the biggest weight to Getty Realty Corp. (NYSE:GTY), around 0.4% of its 13F portfolio. Navellier & Associates is also relatively very bullish on the stock, dishing out 0.19 percent of its 13F equity portfolio to GTY.

Because Getty Realty Corp. (NYSE:GTY) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there exists a select few money managers that elected to cut their entire stakes heading into Q4. At the top of the heap, Benjamin A. Smith’s Laurion Capital Management dumped the biggest investment of the 750 funds watched by Insider Monkey, totaling an estimated $0.4 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also said goodbye to its stock, about $0.3 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 1 funds heading into Q4.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Getty Realty Corp. (NYSE:GTY) but similarly valued. We will take a look at Synaptics Incorporated (NASDAQ:SYNA), Golar LNG Limited (NASDAQ:GLNG), BELLUS Health Inc. (NASDAQ:BLU), and PBF Logistics LP (NYSE:PBFX). This group of stocks’ market values are closest to GTY’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SYNA 19 266720 6
GLNG 24 249259 1
BLU 13 82956 13
PBFX 1 422 -2
Average 14.25 149839 4.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.25 hedge funds with bullish positions and the average amount invested in these stocks was $150 million. That figure was $92 million in GTY’s case. Golar LNG Limited (NASDAQ:GLNG) is the most popular stock in this table. On the other hand PBF Logistics LP (NYSE:PBFX) is the least popular one with only 1 bullish hedge fund positions. Getty Realty Corp. (NYSE:GTY) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately GTY wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); GTY investors were disappointed as the stock returned 4.7% during the first two months of the fourth quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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

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