Hedge Funds Have Never Been This Bullish On Sterling Bancorp (STL)

Debasis Saha

Sat, Mar 28, 2020, 7:34 PM 6 min read

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 835 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 December 31st. In this article we look at what those investors think of Sterling Bancorp (NYSE:STL).

Sterling Bancorp (NYSE:STL) shareholders have witnessed an increase in hedge fund interest recently. STL was in 30 hedge funds' portfolios at the end of December. There were 25 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 Q4 rankings and see the video at the end of this article for Q3 rankings).

Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_758429" align="aligncenter" width="400"]

Ric Dillon of Diamond Hill Capital[/caption]

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. Now let's analyze the new hedge fund action regarding Sterling Bancorp (NYSE:STL).

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

At the end of the fourth quarter, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the previous quarter. On the other hand, there were a total of 18 hedge funds with a bullish position in STL a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Diamond Hill Capital was the largest shareholder of Sterling Bancorp (NYSE:STL), with a stake worth $116.3 million reported as of the end of September. Trailing Diamond Hill Capital was Basswood Capital, which amassed a stake valued at $53.7 million. Citadel Investment Group, Gillson Capital, and GAMCO Investors 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 4.75% of its 13F portfolio. Basswood Capital is also relatively very bullish on the stock, designating 3.75 percent of its 13F equity portfolio to STL.

Now, key money managers have jumped into Sterling Bancorp (NYSE:STL) headfirst. Voleon Capital, managed by Michael Kharitonov and Jon David McAuliffe, created the biggest position in Sterling Bancorp (NYSE:STL). Voleon Capital had $1.6 million invested in the company at the end of the quarter. Phil Stone's Fourthstone LLC also initiated a $1 million position during the quarter. The following funds were also among the new STL investors: Jinghua Yan's TwinBeech Capital, Mika Toikka's AlphaCrest Capital Management, and Gavin Saitowitz and Cisco J. del Valle's Springbok Capital.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Sterling Bancorp (NYSE:STL) but similarly valued. These stocks are Spire Inc. (NYSE:SR), The Timken Company (NYSE:TKR), Glacier Bancorp, Inc. (NASDAQ:GBCI), and Rayonier Inc. (NYSE:RYN). All of these stocks' market caps are closest to STL's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SR,12,55236,-2 TKR,40,407847,11 GBCI,13,49723,-1 RYN,14,360071,-1 Average,19.75,218219,1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $218 million. That figure was $338 million in STL's case. The Timken Company (NYSE:TKR) is the most popular stock in this table. On the other hand Spire Inc. (NYSE:SR) is the least popular one with only 12 bullish hedge fund positions. Sterling Bancorp (NYSE:STL) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately STL wasn't nearly as popular as these 20 stocks and hedge funds that were betting on STL were disappointed as the stock returned -54.2% during the same time period 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 many of these stocks already outperformed the market so far this year.