Do Hedge Funds Love Penn National Gaming, Inc (PENN)?

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 900 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 Penn National Gaming, Inc (NASDAQ:PENN).

Penn National Gaming, Inc (NASDAQ:PENN) was in 40 hedge funds’ portfolios at the end of June. The all time high for this statistic is 45. PENN investors should be aware of a decrease in hedge fund sentiment of late. There were 42 hedge funds in our database with PENN positions at the end of the first quarter. Our calculations also showed that PENN isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Alex Sacerdote of Whale Rock Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind we’re going to take a glance at the fresh hedge fund action regarding Penn National Gaming, Inc (NASDAQ:PENN).

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

At the end of June, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards PENN over the last 24 quarters. With the smart money’s sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

The largest stake in Penn National Gaming, Inc (NASDAQ:PENN) was held by HG Vora Capital Management, which reported holding $191.2 million worth of stock at the end of June. It was followed by Whale Rock Capital Management with a $156.4 million position. Other investors bullish on the company included Millennium Management, Citadel Investment Group, and Millennium Management. In terms of the portfolio weights assigned to each position Isomer Partners allocated the biggest weight to Penn National Gaming, Inc (NASDAQ:PENN), around 13.61% of its 13F portfolio. HG Vora Capital Management is also relatively very bullish on the stock, designating 8.63 percent of its 13F equity portfolio to PENN.

Judging by the fact that Penn National Gaming, Inc (NASDAQ:PENN) has faced declining sentiment from the aggregate hedge fund industry, it’s easy to see that there is a sect of hedgies that decided to sell off their entire stakes heading into Q3. Interestingly, John Overdeck and David Siegel’s Two Sigma Advisors dropped the biggest position of the “upper crust” of funds watched by Insider Monkey, comprising an estimated $67 million in stock, and Robert Pohly’s Samlyn Capital was right behind this move, as the fund dropped about $32.3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds heading into Q3.

Let’s check out hedge fund activity in other stocks similar to Penn National Gaming, Inc (NASDAQ:PENN). These stocks are QuantumScape Corporation (NYSE:QS), Dropbox, Inc. (NASDAQ:DBX), Medical Properties Trust, Inc. (NYSE:MPW), Lamb Weston Holdings, Inc. (NYSE:LW), Chegg Inc (NYSE:CHGG), Trex Company, Inc. (NYSE:TREX), and Grifols SA (NASDAQ:GRFS). All of these stocks’ market caps are similar to PENN’s market cap.

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As you can see these stocks had an average of 28.1 hedge funds with bullish positions and the average amount invested in these stocks was $481 million. That figure was $1039 million in PENN’s case. Dropbox, Inc. (NASDAQ:DBX) is the most popular stock in this table. On the other hand Grifols SA (NASDAQ:GRFS) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Penn National Gaming, Inc (NASDAQ:PENN) is more popular among hedge funds. Our overall hedge fund sentiment score for PENN is 79.7. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 21.8% in 2021 through October 11th and still beat the market by 4.4 percentage points. Unfortunately PENN wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on PENN were disappointed as the stock returned -5.7% since the end of the second quarter (through 10/11) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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