Is ESS Stock A Buy or Sell?

Abigail Fisher
·6 min read

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Essex Property Trust Inc (NYSE:ESS).

Is ESS stock a buy? Prominent investors were taking a pessimistic view. The number of bullish hedge fund bets were cut by 3 recently. Essex Property Trust Inc (NYSE:ESS) was in 25 hedge funds' portfolios at the end of December. The all time high for this statistic is 33. Our calculations also showed that ESS isn't among the 30 most popular stocks among hedge funds (click for Q4 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 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 124 percentage points since March 2017 (see the details here).

Ian Wace Marshall Wace
Ian Wace Marshall Wace

Ian Wace of Marshall Wace

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. 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. Now we're going to take a glance at the latest hedge fund action surrounding Essex Property Trust Inc (NYSE:ESS).

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

At the end of the fourth quarter, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of -11% from the third quarter of 2020. On the other hand, there were a total of 33 hedge funds with a bullish position in ESS a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

More specifically, Long Pond Capital was the largest shareholder of Essex Property Trust Inc (NYSE:ESS), with a stake worth $75.9 million reported as of the end of December. Trailing Long Pond Capital was Two Sigma Advisors, which amassed a stake valued at $57.2 million. D E Shaw, Waterfront Capital Partners, and Renaissance Technologies 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 Masterton Capital Management allocated the biggest weight to Essex Property Trust Inc (NYSE:ESS), around 5.97% of its 13F portfolio. Waterfront Capital Partners is also relatively very bullish on the stock, designating 3.21 percent of its 13F equity portfolio to ESS.

Since Essex Property Trust Inc (NYSE:ESS) has experienced falling interest from hedge fund managers, it's safe to say that there lies a certain "tier" of money managers who sold off their positions entirely heading into Q1. Intriguingly, Daniel Sundheim's D1 Capital Partners dumped the largest stake of the 750 funds monitored by Insider Monkey, worth an estimated $124 million in stock. Stuart J. Zimmer's fund, Zimmer Partners, also dropped its stock, about $90.2 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest was cut by 3 funds heading into Q1.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Essex Property Trust Inc (NYSE:ESS) but similarly valued. These stocks are Caesars Entertainment Inc. (NASDAQ:CZR), CarMax Inc (NYSE:KMX), Shinhan Financial Group Co., Ltd. (NYSE:SHG), Waters Corporation (NYSE:WAT), Hewlett Packard Enterprise Company (NYSE:HPE), Citizens Financial Group Inc (NYSE:CFG), and 10x Genomics, Inc. (NASDAQ:TXG). All of these stocks' market caps are similar to ESS's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CZR,71,1438605,-3 KMX,46,1485714,-8 SHG,7,27734,3 WAT,30,1993478,-2 HPE,30,923308,-4 CFG,38,453830,2 TXG,33,745283,2 Average,36.4,1009707,-1.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.4 hedge funds with bullish positions and the average amount invested in these stocks was $1010 million. That figure was $310 million in ESS's case. Caesars Entertainment Inc. (NASDAQ:CZR) is the most popular stock in this table. On the other hand Shinhan Financial Group Co., Ltd. (NYSE:SHG) is the least popular one with only 7 bullish hedge fund positions. Essex Property Trust Inc (NYSE:ESS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for ESS is 38.8. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and still beat the market by 0.9 percentage points. A small number of hedge funds were also right about betting on ESS as the stock returned 23.3% since the end of the fourth quarter (through 4/19) and outperformed the market by an even larger margin.

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

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