Is SGMS Stock A Buy or Sell?

Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don’t make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Scientific Games Corp (NASDAQ:SGMS) to find out whether there were any major changes in hedge funds’ views.

Is SGMS stock a buy? Scientific Games Corp (NASDAQ:SGMS) has experienced a decrease in activity from the world’s largest hedge funds in recent months. Scientific Games Corp (NASDAQ:SGMS) was in 23 hedge funds’ portfolios at the end of December. The all time high for this statistic is 33. Our calculations also showed that SGMS isn’t among the 30 most popular stocks among hedge funds (click for Q4 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 124 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Chuck Royce of Royce & Associates

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. With all of this in mind let’s go over the latest hedge fund action surrounding Scientific Games Corp (NASDAQ:SGMS).

Do Hedge Funds Think SGMS Is A Good Stock To Buy Now?

At fourth quarter’s end, a total of 23 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -8% from the previous quarter. On the other hand, there were a total of 33 hedge funds with a bullish position in SGMS a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Debra Fine’s Fine Capital Partners has the most valuable position in Scientific Games Corp (NASDAQ:SGMS), worth close to $378 million, accounting for 83.5% of its total 13F portfolio. Coming in second is Rick Slocum of Harvard Management Co, with a $111.1 million position; the fund has 6% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors that are bullish encompass Mark Cohen’s Stone House Capital, Peter S. Park’s Park West Asset Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Fine Capital Partners allocated the biggest weight to Scientific Games Corp (NASDAQ:SGMS), around 83.52% of its 13F portfolio. Stone House Capital is also relatively very bullish on the stock, dishing out 69.69 percent of its 13F equity portfolio to SGMS.

Judging by the fact that Scientific Games Corp (NASDAQ:SGMS) has faced a decline in interest from the smart money, it’s easy to see that there lies a certain “tier” of funds who were dropping their entire stakes heading into Q1. Interestingly, Daniel Patrick Gibson’s Sylebra Capital Management said goodbye to the biggest investment of the 750 funds followed by Insider Monkey, comprising close to $300.9 million in stock. Stephen Mildenhall’s fund, Contrarius Investment Management, also sold off its stock, about $33 million worth. These moves are interesting, as total hedge fund interest fell by 2 funds heading into Q1.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Scientific Games Corp (NASDAQ:SGMS) but similarly valued. We will take a look at Root, Inc. (NASDAQ:ROOT), Switch, Inc. (NYSE:SWCH), Valley National Bancorp (NYSE:VLY), Wingstop Inc (NASDAQ:WING), WESCO International, Inc. (NYSE:WCC), Agora, Inc. (NASDAQ:API), and Millicom International Cellular S.A. (NASDAQ:TIGO). All of these stocks’ market caps are closest to SGMS’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.7 hedge funds with bullish positions and the average amount invested in these stocks was $385 million. That figure was $809 million in SGMS’s case. Wingstop Inc (NASDAQ:WING) is the most popular stock in this table. On the other hand Millicom International Cellular S.A. (NASDAQ:TIGO) is the least popular one with only 6 bullish hedge fund positions. Scientific Games Corp (NASDAQ:SGMS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SGMS is 62.5. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and beat the market again by 0.9 percentage points. Unfortunately SGMS wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on SGMS were disappointed as the stock returned 7% since the end of December (through 4/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

Disclosure: None. This article was originally published at Insider Monkey.

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