How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Hyatt Hotels Corporation (NYSE:H) and determine whether hedge funds had an edge regarding this stock.
Hyatt Hotels Corporation (NYSE:H) investors should pay attention to an increase in hedge fund interest of late. Hyatt Hotels Corporation (NYSE:H) was in 27 hedge funds' portfolios at the end of June. The all time high for this statistics is 38. Our calculations also showed that H isn't among the 30 most popular stocks among hedge funds (click for Q2 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In the eyes of most market participants, hedge funds are viewed as unimportant, outdated financial tools of yesteryear. While there are over 8000 funds trading at the moment, Our researchers look at the top tier of this club, about 850 funds. Most estimates calculate that this group of people command the majority of the hedge fund industry's total capital, and by keeping track of their unrivaled picks, Insider Monkey has determined a number of investment strategies that have historically beaten the broader indices. Insider Monkey's flagship short hedge fund strategy outstripped the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
Mason Hawkins of Southeastern Asset Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. We go through lists like the 10 most profitable companies in the world 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 to get excerpts of these letters in your inbox. With all of this in mind let's take a glance at the recent hedge fund action surrounding Hyatt Hotels Corporation (NYSE:H).
Hedge fund activity in Hyatt Hotels Corporation (NYSE:H)
At Q2's end, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 13% from the previous quarter. On the other hand, there were a total of 23 hedge funds with a bullish position in H a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).
Among these funds, Melvin Capital Management held the most valuable stake in Hyatt Hotels Corporation (NYSE:H), which was worth $177.3 million at the end of the third quarter. On the second spot was Southeastern Asset Management which amassed $173.1 million worth of shares. Point72 Asset Management, Maplelane Capital, and Echo Street 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 Highside Global Management allocated the biggest weight to Hyatt Hotels Corporation (NYSE:H), around 6.44% of its 13F portfolio. Southeastern Asset Management is also relatively very bullish on the stock, setting aside 4.32 percent of its 13F equity portfolio to H.
As industrywide interest jumped, some big names were breaking ground themselves. Maplelane Capital, managed by Leon Shaulov, established the most valuable position in Hyatt Hotels Corporation (NYSE:H). Maplelane Capital had $17.8 million invested in the company at the end of the quarter. Zach Petrone's Highside Global Management also initiated a $11 million position during the quarter. The other funds with brand new H positions are Anthony Joseph Vaccarino's North Fourth Asset Management, Jay Genzer's Thames Capital Management, and Donald Sussman's Paloma Partners.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Hyatt Hotels Corporation (NYSE:H) but similarly valued. We will take a look at Rexford Industrial Realty Inc (NYSE:REXR), ITT Inc. (NYSE:ITT), Brunswick Corporation (NYSE:BC), National Instruments Corporation (NASDAQ:NATI), CDK Global Inc (NASDAQ:CDK), Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC), and Lincoln Electric Holdings, Inc. (NASDAQ:LECO). All of these stocks' market caps are similar to H's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position REXR,24,179158,9 ITT,25,512144,-3 BC,35,1425715,12 NATI,35,259007,6 CDK,32,323704,8 TKC,5,48945,2 LECO,22,204039,3 Average,25.4,421816,5.3 [/table]
As you can see these stocks had an average of 25.4 hedge funds with bullish positions and the average amount invested in these stocks was $422 million. That figure was $468 million in H's case. Brunswick Corporation (NYSE:BC) is the most popular stock in this table. On the other hand Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC) is the least popular one with only 5 bullish hedge fund positions. Hyatt Hotels Corporation (NYSE:H) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for H is 66. 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. 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 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 gained 21.3% in 2020 through September 25th and beat the market by 17.7 percentage points. Unfortunately H wasn't nearly as popular as these 10 stocks and hedge funds that were betting on H were disappointed as the stock returned 6.2% 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 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
