Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published this article and predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits.
Is Caesars Entertainment Corp (NASDAQ:CZR) a good bet 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.
Caesars Entertainment Corp (NASDAQ:CZR) shares haven’t seen a lot of action during the fourth quarter. Overall, hedge fund sentiment was unchanged. The stock was in 46 hedge funds’ portfolios at the end of the fourth quarter of 2019. 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 Omega Healthcare Investors Inc (NYSE:OHI), TIM Participacoes SA (NYSE:TSU), and Gaming and Leisure Properties Inc (NASDAQ:GLPI) to gather more data points. Our calculations also showed that CZR isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the eyes of most traders, hedge funds are viewed as slow, outdated investment vehicles of years past. While there are greater than 8000 funds trading at the moment, Our researchers look at the leaders of this group, about 850 funds. Most estimates calculate that this group of people watch over the majority of all hedge funds’ total capital, and by shadowing their matchless picks, Insider Monkey has identified several investment strategies that have historically outrun the broader indices. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .
Howard Marks of Oaktree Capital Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind we’re going to go over the recent hedge fund action encompassing Caesars Entertainment Corp (NASDAQ:CZR).
How are hedge funds trading Caesars Entertainment Corp (NASDAQ:CZR)?
At the end of the fourth quarter, a total of 46 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards CZR over the last 18 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).
More specifically, Icahn Capital LP was the largest shareholder of Caesars Entertainment Corp (NASDAQ:CZR), with a stake worth $1553.8 million reported as of the end of September. Trailing Icahn Capital LP was Canyon Capital Advisors, which amassed a stake valued at $618.2 million. Oaktree Capital Management, Magnetar Capital, and Renaissance Technologies 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 Falcon Edge Capital allocated the biggest weight to Caesars Entertainment Corp (NASDAQ:CZR), around 16.43% of its 13F portfolio. Canyon Capital Advisors is also relatively very bullish on the stock, setting aside 14.41 percent of its 13F equity portfolio to CZR.
Because Caesars Entertainment Corp (NASDAQ:CZR) has experienced falling interest from the smart money, logic holds that there lies a certain “tier” of fund managers that slashed their full holdings by the end of the third quarter. At the top of the heap, Himanshu Gulati’s Antara Capital cut the biggest position of the 750 funds tracked by Insider Monkey, worth an estimated $45.9 million in stock. Bryant Regan’s fund, Lafitte Capital Management, also cut its stock, about $35.9 million worth. These moves are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Caesars Entertainment Corp (NASDAQ:CZR) but similarly valued. These stocks are Omega Healthcare Investors Inc (NYSE:OHI), TIM Participacoes SA (NYSE:TSU), Gaming and Leisure Properties Inc (NASDAQ:GLPI), and ICON Public Limited Company (NASDAQ:ICLR). All of these stocks’ market caps are closest to CZR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| OHI | 18 | 147489 | 0 |
| TSU | 11 | 351539 | -3 |
| GLPI | 29 | 851239 | -6 |
| ICLR | 19 | 646835 | -5 |
| Average | 19.25 | 499276 | -3.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.25 hedge funds with bullish positions and the average amount invested in these stocks was $499 million. That figure was $4007 million in CZR’s case. Gaming and Leisure Properties Inc (NASDAQ:GLPI) is the most popular stock in this table. On the other hand TIM Participacoes SA (NYSE:TSU) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Caesars Entertainment Corp (NASDAQ:CZR) is more popular among hedge funds. 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 12.9% in 2020 through March 9th and still beat the market by 1.9 percentage points. Unfortunately CZR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CZR were disappointed as the stock returned -26.2% during the first two months of 2020 (through March 9th) 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 most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
