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. Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 835 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about International Game Technology PLC (NYSE:IGT).
Is International Game Technology PLC (NYSE:IGT) undervalued? The best stock pickers are taking a bullish view. The number of long hedge fund positions went up by 2 recently. Our calculations also showed that IGT 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). IGT was in 30 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 28 hedge funds in our database with IGT positions at the end of the previous quarter.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Paul Reeder of PAR Capital Management
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. With all of this in mind let’s review the latest hedge fund action surrounding International Game Technology PLC (NYSE:IGT).
How are hedge funds trading International Game Technology PLC (NYSE:IGT)?
At Q4’s end, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of 7% from the third quarter of 2019. By comparison, 34 hedge funds held shares or bullish call options in IGT a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in International Game Technology PLC (NYSE:IGT) was held by Samlyn Capital, which reported holding $70.6 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $48.1 million position. Other investors bullish on the company included PAR Capital Management, AQR Capital Management, and SCW Capital Management. In terms of the portfolio weights assigned to each position Covalent Capital Partners allocated the biggest weight to International Game Technology PLC (NYSE:IGT), around 6.04% of its 13F portfolio. SCW Capital Management is also relatively very bullish on the stock, setting aside 5.68 percent of its 13F equity portfolio to IGT.
Consequently, specific money managers were breaking ground themselves. SCW Capital Management, managed by John R. Wagner, created the most outsized position in International Game Technology PLC (NYSE:IGT). SCW Capital Management had $9.5 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $4.4 million investment in the stock during the quarter. The following funds were also among the new IGT investors: John Overdeck and David Siegel’s Two Sigma Advisors, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Dmitry Balyasny’s Balyasny Asset Management.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as International Game Technology PLC (NYSE:IGT) but similarly valued. We will take a look at Kennametal Inc. (NYSE:KMT), Brady Corp (NYSE:BRC), Virtu Financial Inc (NASDAQ:VIRT), and Simmons First National Corporation (NASDAQ:SFNC). This group of stocks’ market caps resemble IGT’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KMT | 19 | 267785 | -8 |
| BRC | 15 | 212707 | -5 |
| VIRT | 15 | 93346 | -3 |
| SFNC | 6 | 25107 | -5 |
| Average | 13.75 | 149736 | -5.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 13.75 hedge funds with bullish positions and the average amount invested in these stocks was $150 million. That figure was $211 million in IGT’s case. Kennametal Inc. (NYSE:KMT) is the most popular stock in this table. On the other hand Simmons First National Corporation (NASDAQ:SFNC) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks International Game Technology PLC (NYSE:IGT) is more popular among hedge funds. 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 and still beat the market by 5.5 percentage points. Unfortunately IGT wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on IGT were disappointed as the stock returned -51.2% during the first two and a half months of 2020 (through March 25th) 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 most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
