Hedge Fund Sentiment Is Stagnant On Melco Resorts & Entertainment Limited (MLCO)

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on June 30th. We at Insider Monkey have made an extensive database of more than 873 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Melco Resorts & Entertainment Limited (NASDAQ:MLCO) based on those filings.

Melco Resorts & Entertainment Limited (NASDAQ:MLCO) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 29 hedge funds’ portfolios at the end of June. Our calculations also showed that MLCO isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Hyatt Hotels Corporation (NYSE:H), Gold Fields Limited (NYSE:GFI), and ITT Inc. (NYSE:ITT) to gather more data points.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 79 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Gabriel Plotkin of Melvin Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium 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. Now we’re going to check out the recent hedge fund action surrounding Melco Resorts & Entertainment Limited (NASDAQ:MLCO).

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

At the end of June, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 32 hedge funds with a bullish position in MLCO a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their stakes meaningfully (or already accumulated large positions).

More specifically, Eminence Capital was the largest shareholder of Melco Resorts & Entertainment Limited (NASDAQ:MLCO), with a stake worth $158.9 million reported as of the end of June. Trailing Eminence Capital was Broad Peak Investment Holdings, which amassed a stake valued at $92.4 million. Long Pond Capital, Melvin Capital Management, and D E Shaw 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 Brightlight Capital allocated the biggest weight to Melco Resorts & Entertainment Limited (NASDAQ:MLCO), around 9.33% of its 13F portfolio. Broad Peak Investment Holdings is also relatively very bullish on the stock, setting aside 7.39 percent of its 13F equity portfolio to MLCO.

Seeing as Melco Resorts & Entertainment Limited (NASDAQ:MLCO) has experienced a decline in interest from the aggregate hedge fund industry, logic holds that there was a specific group of hedgies who were dropping their entire stakes by the end of the second quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dumped the largest position of the 750 funds watched by Insider Monkey, totaling close to $80.3 million in stock, and Benjamin A. Smith’s Laurion Capital Management was right behind this move, as the fund dropped about $2.9 million worth. These transactions are intriguing to say the least, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Melco Resorts & Entertainment Limited (NASDAQ:MLCO) but similarly valued. We will take a look at Hyatt Hotels Corporation (NYSE:H), Gold Fields Limited (NYSE:GFI), ITT Inc. (NYSE:ITT), MasTec, Inc. (NYSE:MTZ), Lincoln Electric Holdings, Inc. (NASDAQ:LECO), New Fortress Energy Inc. (NASDAQ:NFE), and Woodward Inc (NASDAQ:WWD). This group of stocks’ market valuations resemble MLCO’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.4 hedge funds with bullish positions and the average amount invested in these stocks was $376 million. That figure was $755 million in MLCO’s case. MasTec, Inc. (NYSE:MTZ) is the most popular stock in this table. On the other hand New Fortress Energy Inc. (NASDAQ:NFE) is the least popular one with only 9 bullish hedge fund positions. Melco Resorts & Entertainment Limited (NASDAQ:MLCO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MLCO is 63.2. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 24.9% in 2021 through October 15th and beat the market again by 4.5 percentage points. Unfortunately MLCO wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on MLCO were disappointed as the stock returned -32.9% since the end of June (through 10/15) 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 many of these stocks already outperformed the market since 2019.

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