Hedge Funds are Confident about These Entertainment Stocks and You Should Be Too

The entertainment industry might be coming across bountiful growth opportunities at the moment, as the fast-growing demand for content does not seem to slow down any time soon. The never-ending mounting amount of content accessible through the Internet and the great abundance of innovative devices are the key factors that have propelled this demand. On top of that, the industry is facing some reformation as well, as the masses started to spend less time in front of TVs and started consuming the content through numerous remote devices whenever they seem appropriate instead. Having that in mind, the Insider Monkey team will lay out a list of the most favorite entertainment stocks within the hedge fund industry, which might represent great buying opportunities at the moment.

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Why do we pay attention to hedge fund sentiment? Most investors ignore hedge funds’ moves because, as a group, their average net returns trailed the market since 2008 by a large margin. Unfortunately, most investors don’t realize that hedge funds are hedged and they also charge an arm and a leg, so they are likely to underperform the market in a bull market. We ignore their short positions and by imitating hedge funds’ stock picks independently, we don’t have to pay them a dime. Our research has shown that hedge funds’ long stock picks generate strong risk adjusted returns. For instance the 15 most popular small-cap stocks outperformed the S&P 500 Index by an average of 95 basis points per month in our back-tests spanning the 1999-2012 period. We have been tracking the performance of these stocks in real-time since the end of August 2012. After all, things change and we need to verify that back-test results aren’t just a statistical fluke. We weren’t proven wrong. These 15 stocks managed to return more than 118% over the last 36 months and outperformed the S&P 500 Index by 61 percentage points (see the details here).

5. Regal Entertainment Group (NYSE:RGC)

Investors with Long Positions (as of June 30): 19

Aggregate Value of Investors’ Holdings (as of June 30): $111.41 Million

The number of hedge funds monitored by Insider Monkey with stakes in Regal Entertainment Group (NYSE:RGC) remained unchanged during the second quarter, accounting for 3.40% of the company’s common stock; while the value of their holdings grew by $12.37 million. The stock has been beaten down by the market over the last six months, declining almost 16% year-to-date. The largest theatre operator in the nation has been challenged by the declining number of customers over the past few years, according to Ricky Sandler. Regal operates in a steady-declining market, so the company should find new ways of generating growth in this environment. It appears that insiders are not fond of the company’s stock either, with Gregory W. Dunn, President and Chief Operating Officer, selling 19,000 shares at $21.4 per share earlier this year (his ownership stake stands at 109,724 shares). Jim Simons’ Renaissance Technologies owns 1.68 million shares of Regal Entertainment Group (NYSE:RGC) as of June 30.

4. Cinemark Holdings Inc. (NYSE:CNK)

Investors with Long Positions (as of June 30): 19

Aggregate Value of Investors’ Holdings (as of June 30): $294.15 Million

Cinemark Holdings Inc. (NYSE:CNK) is not doing far better than the aforementioned industry peer, with its shares losing more than 8% since the beginning of the year. Two fewer hedge funds had positions in the stock at the end of the second quarter compared to the previous one, which represented 6.30% of Cinemark’s outstanding stock. Similarly, the value of the money invested in the entertainment company shrank by $57.84 million. Tim Warner stepped down as Cinemark’s Chief Executive Officer in August after having spent 50 years of his life in the movie industry. However, he will still be involved in the company’s activity as executive Vice Chairman of the board of directors. Phill Gross and Robert Atchinson’s Adage Capital Management is one of the top shareholders of Cinemark Holdings Inc. (NYSE:CNK) within our database, owning a 885,000 share-stake at the end of June.

3. AMC Entertainment Holdings Inc. (NYSE:AMC)

Investors with Long Positions (as of June 30): 22

Aggregate Value of Investors’ Holdings (as of June 30): $88.10 Million

It appears that the hedge fund sentiment towards AMC Entertainment Holdings Inc. (NYSE:AMC) did not change at all during the latest quarter, while the value of hedge funds’ money poured into the stock decreased by less than $1 million. The top money managers invested in the stock amassed 2.90% of AMC’s outstanding shares as of June 30. The shares of AMC have suffered two serious pullbacks so far this year, being nearly 3% in the red year-to-date. The theatrical exhibition company delivered a strong financial performance during the second quarter, reporting record revenues of $821.1 million, compared to $726.6 million reported a year ago. Ken Griffin‘s Citadel Investment Group held 619,000 shares in AMC Entertainment Holdings Inc. (NYSE:AMC) at the end of June.

2. Carmike Cinemas Inc. (NASDAQ:CKEC)

Investors with Long Positions (as of June 30): 24

Aggregate Value of Investors’ Holdings (as of June 30): $140.56 Million

Carmike Cinemas Inc. (NASDAQ:CKEC) exhausted some of its appeal among the money managers observed by us, as the number of hedge funds with positions in Carmike decreased by five quarter-over-quarter, accounting for 21.60% of the company’s outstanding shares. By the same token, the value of these positions reduced by $72.27 million during the three-month period. The fourth-largest movie theater operator in the U.S. has been able to grow its business quite significantly over the past few years amid a broader industry consolidation. To be more detailed on that, the company’s screen-count has increased by 16% over the last two years. Even so, the shares of Carmike have been following the industry, losing nearly 22% since the beginning of the year. Billionaire Israel Englander’s Millennium Management is among the largest shareholders of Carmike Cinemas Inc. (NASDAQ:CKEC), within our database, with a stake of approximately 891,000 shares.

1. Lions Gate Entertainment Corp. (USA) (NYSE:LGF)

Investors with Long Positions (as of June 30): 35

Aggregate Value of Investors’ Holdings (as of June 30): $2.66 Billion

Lions Gate Entertainment Corp. (USA) (NYSE:LGF) was the most appreciated entertainment stock among the 700+ hedge funds and other investors from our database during the second quarter. A total of 35 money managers were invested in Lions Gate at the end of June, up by seven over the quarter. At the same time, these funds hold nearly half of the Santa Monica-based company’s outstanding stock as of June 30. Similarly, the value of hedge funds’ positions into the stock climbed by $237.51 million during the period. The movie and television production company has been well-positioned to make the most of the ever-changing television landscape, with its stock advancing a whopping 19% year-to-date. Mark Rachesky’s MHR Fund Management reported an ownership stake in Lions Gate Entertainment Corp. (USA) (NYSE:LGF) of 40.21 million shares in its most recent 13F filing.

Disclosure: None