What Do Hedge Funds Think of Scientific Games Corp (SGMS)?

The market has been volatile as the Federal Reserve winds down its easy money policies. Small cap stocks have been hit hard as a result, as the Russell 2000 ETF (IWM) has underperformed the larger S&P 500 ETF (SPY) by more than 14 percentage points between June 25th and the end of October. SEC filings and hedge fund investor letters indicate that the smart money seems to be paring back their overall long exposure, and the funds’ movements is one of the reasons why the major indexes have retraced. In this article, we analyze what the smart money thinks of Scientific Games Corp (NASDAQ:SGMS) and find out how it is affected by hedge funds’ moves.

Hedge fund interest in Scientific Games Corp shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Sucampo Pharmaceuticals, Inc. (NASDAQ:SCMP), QLogic Corporation (NASDAQ:QLGC), and MTS Systems Corporation (NASDAQ:MTSC) to gather more data points.

In the 21st century investor’s toolkit there are a large number of tools market participants put to use to grade publicly traded companies. A couple of the most under-the-radar tools are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the top picks of the top hedge fund managers can outclass the S&P 500 by a superb amount (see the details here).

With all of this in mind, let’s take a look at the new action encompassing Scientific Games Corp (NASDAQ:SGMS).

Hedge fund activity in Scientific Games Corp (NASDAQ:SGMS)

At the end of the third quarter, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, unchanged from one quarter earlier. With hedgies’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

When looking at the institutional investors followed by Insider Monkey, Debra Fine’s Fine Capital Partners has the number one position in Scientific Games Corp (NASDAQ:SGMS), worth close to $89.6 million, amounting to 8.8% of its total 13F portfolio. Coming in second is Baker Street Capital, managed by Vadim Perelman, which holds a $52.3 million call position; 27% of its 13F portfolio is allocated to the company. Remaining members of the smart money with similar optimism comprise Wilmot B. Harkey and Daniel Mack’s Nantahala Capital Management, Paul Reeder and Edward Shapiro’s PAR Capital Management and Roberto Mignone’s Bridger Management.

It’s worth mentioning that Lee Munder’s Lee Munder Capital Group cut the biggest position of the 700 funds followed by Insider Monkey, worth an estimated $9.8 million in stock, and Buckley Ratchford’s Wingspan Investment Management was right behind this move, as the fund sold off about $9.3 million worth. These transactions are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Scientific Games Corp (NASDAQ:SGMS) but similarly valued. These stocks are Sucampo Pharmaceuticals, Inc. (NASDAQ:SCMP), QLogic Corporation (NASDAQ:QLGC), MTS Systems Corporation (NASDAQ:MTSC), and Gener8 Maritime Inc (NYSE:GNRT). All of these stocks’ market caps match SGMS’s market cap.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $196 million. That figure was $411 million in SGMS’s case. QLogic Corporation (NASDAQ:QLGC) is the most popular stock in this table. On the other hand MTS Systems Corporation (NASDAQ:MTSC) is the least popular one with only 12 bullish hedge fund positions. Compared to these stocks Scientific Games Corp (NASDAQ:SGMS) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.