Were Hedge Funds Right About Penn National Gaming, Inc (PENN)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the second quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 6 years and analyze what the smart money thinks of Penn National Gaming, Inc (NASDAQ:PENN) based on that data.

Penn National Gaming, Inc (NASDAQ:PENN) has seen a decrease in hedge fund interest in recent months. Penn National Gaming, Inc (NASDAQ:PENN) was in 40 hedge funds’ portfolios at the end of June. The all time high for this statistic is 45. There were 42 hedge funds in our database with PENN holdings at the end of March. Our calculations also showed that PENN isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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. Hedge funds have more than $3.5 trillion in assets under management, so you can’t expect their entire portfolios to beat the market by large margins. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). So you can still find a lot of gems by following hedge funds’ moves today.

Parag Vora of HG Vora Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Now we’re going to take a glance at the latest hedge fund action encompassing Penn National Gaming, Inc (NASDAQ:PENN).

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

At second quarter’s end, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of -5% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards PENN over the last 24 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Penn National Gaming, Inc (NASDAQ:PENN) was held by HG Vora Capital Management, which reported holding $191.2 million worth of stock at the end of June. It was followed by Whale Rock Capital Management with a $156.4 million position. Other investors bullish on the company included Millennium Management, Citadel Investment Group, and Millennium Management. In terms of the portfolio weights assigned to each position Isomer Partners allocated the biggest weight to Penn National Gaming, Inc (NASDAQ:PENN), around 13.61% of its 13F portfolio. HG Vora Capital Management is also relatively very bullish on the stock, earmarking 8.63 percent of its 13F equity portfolio to PENN.

Because Penn National Gaming, Inc (NASDAQ:PENN) has experienced declining sentiment from the smart money, logic holds that there lies a certain “tier” of fund managers who sold off their full holdings in the second quarter. At the top of the heap, John Overdeck and David Siegel’s Two Sigma Advisors cut the biggest position of the 750 funds followed by Insider Monkey, worth an estimated $67 million in stock, and Robert Pohly’s Samlyn Capital was right behind this move, as the fund cut about $32.3 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 2 funds in the second quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Penn National Gaming, Inc (NASDAQ:PENN) but similarly valued. We will take a look at QuantumScape Corporation (NYSE:QS), Dropbox, Inc. (NASDAQ:DBX), Medical Properties Trust, Inc. (NYSE:MPW), Lamb Weston Holdings, Inc. (NYSE:LW), Chegg Inc (NYSE:CHGG), Trex Company, Inc. (NYSE:TREX), and Grifols SA (NASDAQ:GRFS). This group of stocks’ market values are closest to PENN’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.1 hedge funds with bullish positions and the average amount invested in these stocks was $481 million. That figure was $1039 million in PENN’s case. Dropbox, Inc. (NASDAQ:DBX) is the most popular stock in this table. On the other hand Grifols SA (NASDAQ:GRFS) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Penn National Gaming, Inc (NASDAQ:PENN) is more popular among hedge funds. Our overall hedge fund sentiment score for PENN is 79.7. 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. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 through November 5th and still beat the market by 3.1 percentage points. Unfortunately PENN wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on PENN were disappointed as the stock returned -19.3% since the end of the second quarter (through 11/5) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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