Is Penn National Gaming, Inc (NASDAQ:PENN) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Penn National Gaming, Inc (NASDAQ:PENN) was in 23 hedge funds’ portfolios at the end of September. PENN shareholders have witnessed an increase in hedge fund sentiment lately. There were 20 hedge funds in our database with PENN positions at the end of the previous quarter. Our calculations also showed that PENN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Parag Vora of HG Vora Capital
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world’s most bearish hedge fund that’s more convinced than ever that a crash is coming, our long-short investment strategy doesn’t rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds‘ buy/sell signals. Let’s view the new hedge fund action encompassing Penn National Gaming, Inc (NASDAQ:PENN).
What does smart money think about Penn National Gaming, Inc (NASDAQ:PENN)?
Heading into the fourth quarter of 2019, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 15% from the second quarter of 2019. On the other hand, there were a total of 24 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.
Of the funds tracked by Insider Monkey, Parag Vora’s HG Vora Capital Management has the biggest position in Penn National Gaming, Inc (NASDAQ:PENN), worth close to $139.7 million, corresponding to 13.4% of its total 13F portfolio. On HG Vora Capital Management’s heels is Ken Grossman and Glen Schneider of SG Capital Management, with a $19.2 million position; 3.6% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that hold long positions consist of Ken Griffin’s Citadel Investment Group, Mark Coe’s Intrinsic Edge Capital and Traci Lerner’s Chescapmanager LLC. 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 18.12% of its 13F portfolio. HG Vora Capital Management is also relatively very bullish on the stock, designating 13.38 percent of its 13F equity portfolio to PENN.
As aggregate interest increased, key money managers were breaking ground themselves. Intrinsic Edge Capital, managed by Mark Coe, created the most outsized position in Penn National Gaming, Inc (NASDAQ:PENN). Intrinsic Edge Capital had $8.4 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also initiated a $7.2 million position during the quarter. The following funds were also among the new PENN investors: Daniel Lascano’s Lomas Capital Management, Brian Gustavson and Andrew Haley’s 1060 Capital Management, and Traci Lerner’s Chescapmanager LLC.
Let’s go over hedge fund activity in other stocks similar to Penn National Gaming, Inc (NASDAQ:PENN). These stocks are Korn Ferry (NYSE:KFY), First Midwest Bancorp Inc (NASDAQ:FMBI), Avis Budget Group Inc. (NASDAQ:CAR), and Adient plc (NYSE:ADNT). This group of stocks’ market caps are similar to PENN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| KFY | 23 | 169429 | 1 |
| FMBI | 14 | 73984 | 0 |
| CAR | 21 | 951854 | 0 |
| ADNT | 25 | 590269 | 7 |
| Average | 20.75 | 446384 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $446 million. That figure was $227 million in PENN’s case. Adient plc (NYSE:ADNT) is the most popular stock in this table. On the other hand First Midwest Bancorp Inc (NASDAQ:FMBI) is the least popular one with only 14 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on PENN as the stock returned 23.6% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.
