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. Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 835 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Penn National Gaming, Inc (NASDAQ:PENN), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
Is Penn National Gaming, Inc (NASDAQ:PENN) worth your attention right now? The smart money is turning bullish. The number of bullish hedge fund bets rose by 2 lately. Our calculations also showed that PENN 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).
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 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 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.
Parag Vora of HG Vora 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. Now let’s take a peek at the recent hedge fund action encompassing Penn National Gaming, Inc (NASDAQ:PENN).
What have hedge funds been doing with Penn National Gaming, Inc (NASDAQ:PENN)?
At Q4’s end, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from the third quarter of 2019. On the other hand, there were a total of 18 hedge funds with a bullish position in PENN a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, HG Vora Capital Management held the most valuable stake in Penn National Gaming, Inc (NASDAQ:PENN), which was worth $51.1 million at the end of the third quarter. On the second spot was PAR Capital Management which amassed $15.1 million worth of shares. Millennium Management, Chescapmanager LLC, and Citadel Investment Group 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 1060 Capital Management allocated the biggest weight to Penn National Gaming, Inc (NASDAQ:PENN), around 18.44% of its 13F portfolio. HG Vora Capital Management is also relatively very bullish on the stock, designating 4.8 percent of its 13F equity portfolio to PENN.
Consequently, key money managers have been driving this bullishness. Renaissance Technologies, created the most outsized position in Penn National Gaming, Inc (NASDAQ:PENN). Renaissance Technologies had $4.2 million invested in the company at the end of the quarter. Richard Driehaus’s Driehaus Capital also initiated a $3.2 million position during the quarter. The other funds with new positions in the stock are Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Prem Watsa’s Fairfax Financial Holdings.
Let’s now review hedge fund activity in other stocks similar to Penn National Gaming, Inc (NASDAQ:PENN). We will take a look at PTC Therapeutics, Inc. (NASDAQ:PTCT), The Chemours Company (NYSE:CC), Itau CorpBanca (NYSE:ITCB), and Acadia Healthcare Company Inc (NASDAQ:ACHC). This group of stocks’ market caps resemble PENN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PTCT | 34 | 605873 | -2 |
| CC | 29 | 332478 | -1 |
| ITCB | 1 | 2800 | 0 |
| ACHC | 28 | 655188 | 6 |
| Average | 23 | 399085 | 0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 23 hedge funds with bullish positions and the average amount invested in these stocks was $399 million. That figure was $131 million in PENN’s case. PTC Therapeutics, Inc. (NASDAQ:PTCT) is the most popular stock in this table. On the other hand Itau CorpBanca (NYSE:ITCB) is the least popular one with only 1 bullish hedge fund positions. Penn National Gaming, Inc (NASDAQ:PENN) 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 PENN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on PENN were disappointed as the stock returned -43% 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.
