Where Do Hedge Funds Stand On istar Inc (STAR)?

At Insider Monkey, we pore over the filings of nearly 817 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of September 30. In this article, we will use that wealth of knowledge to determine whether or not istar Inc (NYSE:STAR) makes for a good investment right now.

Is istar Inc (NYSE:STAR) undervalued? The best stock pickers were getting more optimistic. The number of bullish hedge fund bets rose by 1 in recent months. istar Inc (NYSE:STAR) was in 14 hedge funds’ portfolios at the end of September. The all time high for this statistic is 23. Our calculations also showed that STAR 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). There were 13 hedge funds in our database with STAR holdings at the end of June.

Video: Watch our video about the top 5 most popular hedge fund stocks.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

Emanuel J. Friedman

Emanuel Friedman of EJF Capital

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. Keeping this in mind we’re going to take a glance at the fresh hedge fund action regarding istar Inc (NYSE:STAR).

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

At the end of the third quarter, a total of 14 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 8% from the previous quarter. The graph below displays the number of hedge funds with bullish position in STAR over the last 21 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

More specifically, EJF Capital was the largest shareholder of istar Inc (NYSE:STAR), with a stake worth $63.1 million reported as of the end of September. Trailing EJF Capital was LMR Partners, which amassed a stake valued at $18.1 million. Diamond Hill Capital, Winton Capital Management, and D E Shaw 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 EJF Capital allocated the biggest weight to istar Inc (NYSE:STAR), around 5.27% of its 13F portfolio. LMR Partners is also relatively very bullish on the stock, setting aside 0.37 percent of its 13F equity portfolio to STAR.

As one would reasonably expect, key hedge funds have jumped into istar Inc (NYSE:STAR) headfirst. Millennium Management, managed by Israel Englander, assembled the largest position in istar Inc (NYSE:STAR). Millennium Management had $0.7 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also made a $0.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Thomas Bailard’s Bailard Inc, Michael Gelband’s ExodusPoint Capital, and Donald Sussman’s Paloma Partners.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as istar Inc (NYSE:STAR) but similarly valued. These stocks are Employers Holdings, Inc. (NYSE:EIG), DHT Holdings Inc (NYSE:DHT), Cardtronics plc (NASDAQ:CATM), Dyne Therapeutics, Inc. (NASDAQ:DYN), Denbury Inc. (NYSE:DEN), Warrior Met Coal Inc. (NYSE:HCC), and CEVA, Inc. (NASDAQ:CEVA). This group of stocks’ market caps resemble STAR’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EIG 12 52197 0
DHT 24 129282 6
CATM 15 247410 -6
DYN 23 219240 23
DEN 9 298169 9
HCC 26 199815 5
CEVA 12 44479 -4
Average 17.3 170085 4.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.3 hedge funds with bullish positions and the average amount invested in these stocks was $170 million. That figure was $103 million in STAR’s case. Warrior Met Coal Inc. (NYSE:HCC) is the most popular stock in this table. On the other hand Denbury Inc. (NYSE:DEN) is the least popular one with only 9 bullish hedge fund positions. istar Inc (NYSE:STAR) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for STAR is 39. 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 gained 32.9% in 2020 through December 8th and still beat the market by 16.2 percentage points. A small number of hedge funds were also right about betting on STAR as the stock returned 25.3% since the end of the third quarter (through 12/8) and outperformed the market by an even larger margin.

Follow Istar Inc. (LON:STAR)

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