We have been waiting for this for a year and finally the third quarter ended up showing a nice bump in the performance of small-cap stocks. Both the S&P 500 and Russell 2000 were up since the end of the second quarter, but small-cap stocks outperformed the large-cap stocks by double digits. This is important for hedge funds, which are big supporters of small-cap stocks, because their investors started pulling some of their capital out due to poor recent performance. It is very likely that equity hedge funds will deliver better risk adjusted returns in the second half of this year. In this article we are going to look at how this recent market trend affected the sentiment of hedge funds towards Red Rock Resorts Inc (NASDAQ:RRR) , and what that likely means for the prospects of the company and its stock.
Is Red Rock Resorts Inc (NASDAQ:RRR) going to take off soon? Hedge funds are undoubtedly selling. The number of bullish hedge fund bets suffered a reduction of 4 lately. There were 17 hedge funds in our database with RRR positions at the end of the 2016 third quarter. At the end of this article we will also compare RRR to other stocks including CIRCOR International, Inc. (NYSE:CIR), Forward Pharma A/S (NASDAQ:FWP), and US Ecology Inc. (NASDAQ:ECOL) to get a better sense of its popularity.
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At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
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Now, let’s view the latest action regarding Red Rock Resorts Inc (NASDAQ:RRR).
How are hedge funds trading Red Rock Resorts Inc (NASDAQ:RRR)?
Heading into the fourth quarter of 2016, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, down 19% from the second quarter of 2016. On the other hand, there were a total of 0 hedge funds with a bullish position in RRR at the beginning of this year. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Ric Dillon’s Diamond Hill Capital has the most valuable position in Red Rock Resorts Inc (NASDAQ:RRR), worth close to $51.8 million. The second most bullish fund manager is Jody LaNasa’s Serengeti Asset Management holding a $37.7 million position; 9.6% of its 13F portfolio is allocated to the company. Some other professional money managers that hold long positions consist of Jacob Doft’s Highline Capital Management, Paul Reeder and Edward Shapiro’s PAR Capital Management and Christopher A. Winham’s Tide Point Capital. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
We already know that not all hedge funds are bullish on the stock and some hedge funds actually cut their positions entirely. Intriguingly, Dmitry Balyasny’s Balyasny Asset Management cut the biggest investment of the “upper crust” of funds tracked by Insider Monkey, valued at close to $12.2 million in stock, and Ken Heebner’s Capital Growth Management was right behind this move, as the fund dropped about $5.7 million worth of RRR shares.
Let’s now take a look at hedge fund activity in other stocks similar to Red Rock Resorts Inc (NASDAQ:RRR). We will take a look at CIRCOR International, Inc. (NYSE:CIR), Forward Pharma A/S (NASDAQ:FWP), US Ecology Inc. (NASDAQ:ECOL), and Healthways, Inc. (NASDAQ:HWAY). All of these stocks’ market caps resemble RRR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CIR | 11 | 185417 | 4 |
| FWP | 10 | 208236 | -1 |
| ECOL | 8 | 66931 | -3 |
| HWAY | 19 | 279048 | 1 |
As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $185 million. That figure was $186 million in RRR’s case. Healthways, Inc. (NASDAQ:HWAY) is the most popular stock in this table. On the other hand US Ecology Inc. (NASDAQ:ECOL) is the least popular one with only 8 bullish hedge fund positions. Red Rock Resorts Inc (NASDAQ:RRR) 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. In this regard HWAY might be a better candidate to consider taking a long position in.
Disclosure: None
