We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s take a look at whether Churchill Downs Incorporated (NASDAQ:CHDN) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is Churchill Downs Incorporated (NASDAQ:CHDN) a buy, sell, or hold? Money managers are becoming hopeful. The number of bullish hedge fund bets increased by 6 lately. Our calculations also showed that CHDN isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
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 more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Paul Reeder of PAR Capital Management
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to view the latest hedge fund action surrounding Churchill Downs Incorporated (NASDAQ:CHDN).
How are hedge funds trading Churchill Downs Incorporated (NASDAQ:CHDN)?
At Q4’s end, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 23% from one quarter earlier. On the other hand, there were a total of 26 hedge funds with a bullish position in CHDN a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).
Among these funds, Nitorum Capital held the most valuable stake in Churchill Downs Incorporated (NASDAQ:CHDN), which was worth $143.1 million at the end of the third quarter. On the second spot was PAR Capital Management which amassed $137.2 million worth of shares. Millennium Management, Hudson Way Capital Management, and GAMCO Investors 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 Hudson Way Capital Management allocated the biggest weight to Churchill Downs Incorporated (NASDAQ:CHDN), around 17.81% of its 13F portfolio. 1060 Capital Management is also relatively very bullish on the stock, designating 15.88 percent of its 13F equity portfolio to CHDN.
As aggregate interest increased, some big names were breaking ground themselves. Banbury Partners, managed by Baker Burleson and Stormy Scott, assembled the biggest position in Churchill Downs Incorporated (NASDAQ:CHDN). Banbury Partners had $28.9 million invested in the company at the end of the quarter. Ben Gambill’s Tiger Eye Capital also made a $16.6 million investment in the stock during the quarter. The other funds with brand new CHDN positions are Brad Stephens’s Six Columns Capital, Clint Carlson’s Carlson Capital, and Kevin Mok’s Hidden Lake Asset Management.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Churchill Downs Incorporated (NASDAQ:CHDN) but similarly valued. These stocks are Huntsman Corporation (NYSE:HUN), NewMarket Corporation (NYSE:NEU), Marriott Vacations Worldwide Corporation (NYSE:VAC), and Nexstar Media Group, Inc. (NASDAQ:NXST). This group of stocks’ market values match CHDN’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| HUN | 39 | 401253 | 8 |
| NEU | 22 | 195365 | -7 |
| VAC | 25 | 512208 | -5 |
| NXST | 40 | 1488285 | 5 |
| Average | 31.5 | 649278 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.5 hedge funds with bullish positions and the average amount invested in these stocks was $649 million. That figure was $599 million in CHDN’s case. Nexstar Media Group, Inc. (NASDAQ:NXST) is the most popular stock in this table. On the other hand NewMarket Corporation (NYSE:NEU) is the least popular one with only 22 bullish hedge fund positions. Churchill Downs Incorporated (NASDAQ:CHDN) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately CHDN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CHDN were disappointed as the stock returned -30.4% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
