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Is Churchill Downs Incorporated (CHDN) Going to Burn These Hedge Funds?

·6 min read

Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Churchill Downs Incorporated (NASDAQ:CHDN).

Is Churchill Downs Incorporated (NASDAQ:CHDN) a sound investment right now? Hedge funds were cutting their exposure. The number of long hedge fund bets dropped by 6 in recent months. Churchill Downs Incorporated (NASDAQ:CHDN) was in 19 hedge funds' portfolios at the end of March. The all time high for this statistic is 32. Our calculations also showed that CHDN isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). There were 25 hedge funds in our database with CHDN holdings at the end of December.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

David E. Shaw of D.E. Shaw
David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, pet market is growing at a 7% annual rate and is expected to reach $110 billion in 2021. So, we are checking out the 5 best stocks for animal lovers. We go through lists like the 15 best Jim Cramer stocks to identify the next Tesla that will deliver outsized returns. 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 let's take a gander at the recent hedge fund action regarding Churchill Downs Incorporated (NASDAQ:CHDN).

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

Heading into the second quarter of 2021, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -24% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards CHDN over the last 23 quarters. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

Is CHDN A Good Stock To Buy?
Is CHDN A Good Stock To Buy?

When looking at the institutional investors followed by Insider Monkey, Seth Rosen's Nitorum Capital has the largest position in Churchill Downs Incorporated (NASDAQ:CHDN), worth close to $198.4 million, corresponding to 10.1% of its total 13F portfolio. On Nitorum Capital's heels is Mario Gabelli of GAMCO Investors, with a $49.8 million position; the fund has 0.4% of its 13F portfolio invested in the stock. Some other members of the smart money that hold long positions include Peter Rathjens, Bruce Clarke and John Campbell's Arrowstreet Capital, Ben Gambill's Tiger Eye Capital and D. E. Shaw's D E Shaw. In terms of the portfolio weights assigned to each position Nitorum Capital allocated the biggest weight to Churchill Downs Incorporated (NASDAQ:CHDN), around 10.14% of its 13F portfolio. Tiger Eye Capital is also relatively very bullish on the stock, dishing out 5.12 percent of its 13F equity portfolio to CHDN.

Judging by the fact that Churchill Downs Incorporated (NASDAQ:CHDN) has experienced bearish sentiment from hedge fund managers, we can see that there were a few money managers who sold off their entire stakes last quarter. At the top of the heap, Doug Gordon, Jon Hilsabeck and Don Jabro's Shellback Capital cut the biggest investment of the "upper crust" of funds watched by Insider Monkey, worth close to $10.7 million in stock. Paul Tudor Jones's fund, Tudor Investment Corp, also said goodbye to its stock, about $1 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 6 funds last quarter.

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Churchill Downs Incorporated (NASDAQ:CHDN) but similarly valued. These stocks are Kingsoft Cloud Holdings Limited (NASDAQ:KC), Alleghany Corporation (NYSE:Y), SEI Investments Company (NASDAQ:SEIC), Amedisys Inc (NASDAQ:AMED), Gentex Corporation (NASDAQ:GNTX), West Fraser Timber Co. Ltd. (NYSE:WFG), and Vornado Realty Trust (NYSE:VNO). This group of stocks' market caps are similar to CHDN's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KC,16,92226,-4 Y,34,359891,0 SEIC,27,304623,-6 AMED,26,324073,6 GNTX,35,537554,-1 WFG,25,580726,25 VNO,25,216181,2 Average,26.9,345039,3.1 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.9 hedge funds with bullish positions and the average amount invested in these stocks was $345 million. That figure was $413 million in CHDN's case. Gentex Corporation (NASDAQ:GNTX) is the most popular stock in this table. On the other hand Kingsoft Cloud Holdings Limited (NASDAQ:KC) is the least popular one with only 16 bullish hedge fund positions. Churchill Downs Incorporated (NASDAQ:CHDN) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CHDN is 24.7. 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. 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 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 23.8% in 2021 through July 16th and surpassed the market again by 7.7 percentage points. Unfortunately CHDN wasn't nearly as popular as these 5 stocks (hedge fund sentiment was quite bearish); CHDN investors were disappointed as the stock returned -20.4% since the end of March (through 7/16) 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 in 2021.

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