In this article we will check out the progression of hedge fund sentiment towards Eldorado Resorts Inc (NYSE:ERI) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.
Eldorado Resorts Inc (NYSE:ERI) has experienced a decrease in activity from the world’s largest hedge funds lately. ERI was in 39 hedge funds’ portfolios at the end of the first quarter of 2020. There were 49 hedge funds in our database with ERI holdings at the end of the previous quarter. Our calculations also showed that ERI isn’t among the 30 most popular stocks among hedge funds (click for Q1 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 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 87% since March 2017 and outperformed the S&P 500 ETFs by more than 51 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.
Roberto Mignone of Bridger Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a look at the key hedge fund action regarding Eldorado Resorts Inc (NYSE:ERI).
How have hedgies been trading Eldorado Resorts Inc (NYSE:ERI)?
At Q1’s end, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ERI over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Joshua Friedman and Mitchell Julis’s Canyon Capital Advisors has the biggest position in Eldorado Resorts Inc (NYSE:ERI), worth close to $75.5 million, comprising 2.7% of its total 13F portfolio. The second most bullish fund manager is HG Vora Capital Management, led by Parag Vora, holding a $43.2 million position; 4.2% of its 13F portfolio is allocated to the company. Some other professional money managers that hold long positions comprise Peter S. Park’s Park West Asset Management, Roberto Mignone’s Bridger Management and Edward A. Mule’s Silver Point Capital. In terms of the portfolio weights assigned to each position Lafitte Capital Management allocated the biggest weight to Eldorado Resorts Inc (NYSE:ERI), around 11.05% of its 13F portfolio. Shelter Haven Capital Management is also relatively very bullish on the stock, designating 4.31 percent of its 13F equity portfolio to ERI.
Judging by the fact that Eldorado Resorts Inc (NYSE:ERI) has witnessed declining sentiment from the aggregate hedge fund industry, logic holds that there is a sect of funds who sold off their full holdings by the end of the third quarter. At the top of the heap, Peter S. Park’s Park West Asset Management dumped the biggest position of the “upper crust” of funds tracked by Insider Monkey, totaling about $61.8 million in stock. Jacob Doft’s fund, Highline Capital Management, also said goodbye to its stock, about $40.4 million worth. These transactions are interesting, as total hedge fund interest was cut by 10 funds by the end of the third quarter.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Eldorado Resorts Inc (NYSE:ERI) but similarly valued. We will take a look at Enable Midstream Partners LP (NYSE:ENBL), Texas Capital Bancshares Inc (NASDAQ:TCBI), Scorpio Tankers Inc. (NYSE:STNG), and Flagstar Bancorp Inc (NYSE:FBC). This group of stocks’ market valuations resemble ERI’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ENBL | 6 | 6540 | 2 |
| TCBI | 19 | 52354 | -7 |
| STNG | 25 | 87700 | -8 |
| FBC | 15 | 66195 | -5 |
| Average | 16.25 | 53197 | -4.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $53 million. That figure was $279 million in ERI’s case. Scorpio Tankers Inc. (NYSE:STNG) is the most popular stock in this table. On the other hand Enable Midstream Partners LP (NYSE:ENBL) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Eldorado Resorts Inc (NYSE:ERI) is more popular among hedge funds. 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 returned 8.3% in 2020 through the end of May but still managed to beat the market by 13.2 percentage points. Hedge funds were also right about betting on ERI as the stock returned 146.2% so far in Q2 (through the end of May) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
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Disclosure: None. This article was originally published at Insider Monkey.
