Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We 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. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (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. Is Red Rock Resorts, Inc. (NASDAQ:RRR) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Red Rock Resorts, Inc. (NASDAQ:RRR) was in 18 hedge funds’ portfolios at the end of December. RRR has experienced an increase in support from the world’s most elite money managers recently. There were 17 hedge funds in our database with RRR holdings at the end of the previous quarter. Our calculations also showed that RRR 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).
According to most shareholders, hedge funds are perceived as worthless, old financial vehicles of years past. While there are over 8000 funds with their doors open at present, Our researchers choose to focus on the leaders of this group, approximately 850 funds. These hedge fund managers have their hands on most of the smart money’s total capital, and by tailing their highest performing equity investments, Insider Monkey has deciphered numerous investment strategies that have historically outperformed the broader indices. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points a 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 .
Ric Dillon of Diamond Hill Capital
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 let’s go over the recent hedge fund action encompassing Red Rock Resorts, Inc. (NASDAQ:RRR).
What does smart money think about Red Rock Resorts, Inc. (NASDAQ:RRR)?
At Q4’s end, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from the third quarter of 2019. On the other hand, there were a total of 17 hedge funds with a bullish position in RRR a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
More specifically, Diamond Hill Capital was the largest shareholder of Red Rock Resorts, Inc. (NASDAQ:RRR), with a stake worth $164.4 million reported as of the end of September. Trailing Diamond Hill Capital was Long Pond Capital, which amassed a stake valued at $59.5 million. Citadel Investment Group, PAR Capital Management, and Serengeti Asset Management 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 Serengeti Asset Management allocated the biggest weight to Red Rock Resorts, Inc. (NASDAQ:RRR), around 5.8% of its 13F portfolio. Dendur Capital is also relatively very bullish on the stock, dishing out 4 percent of its 13F equity portfolio to RRR.
With a general bullishness amongst the heavyweights, specific money managers have been driving this bullishness. Dendur Capital, managed by Malcolm Levine, established the most valuable position in Red Rock Resorts, Inc. (NASDAQ:RRR). Dendur Capital had $11.5 million invested in the company at the end of the quarter. Craig Peskin and Peter Fleiss’s Solel Partners also made a $5.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management, Donald Sussman’s Paloma Partners, and Qing Li’s Sciencast Management.
Let’s go over hedge fund activity in other stocks similar to Red Rock Resorts, Inc. (NASDAQ:RRR). We will take a look at Acceleron Pharma Inc (NASDAQ:XLRN), Apollo Commercial Real Est. Finance Inc (NYSE:ARI), KAR Auction Services Inc (NYSE:KAR), and NuStar Energy L.P. (NYSE:NS). This group of stocks’ market values are closest to RRR’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| XLRN | 27 | 392663 | 1 |
| ARI | 16 | 81491 | 6 |
| KAR | 26 | 399012 | -7 |
| NS | 7 | 27233 | 4 |
| Average | 19 | 225100 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19 hedge funds with bullish positions and the average amount invested in these stocks was $225 million. That figure was $364 million in RRR’s case. Acceleron Pharma Inc (NASDAQ:XLRN) is the most popular stock in this table. On the other hand NuStar Energy L.P. (NYSE:NS) is the least popular one with only 7 bullish hedge fund positions. Red Rock Resorts, Inc. (NASDAQ:RRR) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 RRR wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); RRR investors were disappointed as the stock returned -58.6% 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 most of these stocks already outperformed the market in Q1.
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.
