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How Did Caesars Entertainment Corp (CZR) Compare Against Hedge Fund Darlings in 2019?

Abigail Fisher

We are still in an overall bull market and many stocks that smart money investors were piling into surged in 2019. Among them, Facebook and Microsoft ranked among the top 3 picks and these stocks gained more than 57% each. Hedge funds' top 3 stock picks returned 44.6% this year and beat the S&P 500 ETFs by almost 14 percentage points. That's a big deal. This is why following the smart money sentiment is a useful tool at identifying the next stock to invest in.

Is Caesars Entertainment Corp (NASDAQ:CZR) a buy right now? Investors who are in the know are in a bearish mood. The number of long hedge fund positions shrunk by 3 in recent months. Our calculations also showed that CZR isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). CZR was in 45 hedge funds' portfolios at the end of the third quarter of 2019. There were 48 hedge funds in our database with CZR holdings at the end of the previous quarter.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 27.8% through November 21, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

[caption id="attachment_215987" align="aligncenter" width="450"] Carl Icahn of Icahn Capital[/caption]

Carl Icahn - Icahn Capital Lp

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, "I'm investing more today than I did back in early 2009." So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius' weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager's investor letter and the stock already gained 20 percent. Now we're going to review the new hedge fund action encompassing Caesars Entertainment Corp (NASDAQ:CZR).

Hedge fund activity in Caesars Entertainment Corp (NASDAQ:CZR)

At the end of the third quarter, a total of 45 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from the second quarter of 2019. By comparison, 62 hedge funds held shares or bullish call options in CZR a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Icahn Capital was the largest shareholder of Caesars Entertainment Corp (NASDAQ:CZR), with a stake worth $1332.2 million reported as of the end of September. Trailing Icahn Capital was Canyon Capital Advisors, which amassed a stake valued at $624.5 million. Oaktree Capital Management, Magnetar Capital, and Citadel Investment Group 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 Lafitte Capital Management allocated the biggest weight to Caesars Entertainment Corp (NASDAQ:CZR), around 20.44% of its 13F portfolio. Falcon Edge Capital is also relatively very bullish on the stock, dishing out 14.44 percent of its 13F equity portfolio to CZR.

Due to the fact that Caesars Entertainment Corp (NASDAQ:CZR) has witnessed bearish sentiment from hedge fund managers, logic holds that there exists a select few funds that decided to sell off their positions entirely by the end of the third quarter. It's worth mentioning that Nick Niell's Arrowgrass Capital Partners said goodbye to the largest position of the 750 funds tracked by Insider Monkey, valued at close to $73.9 million in call options, and Don Morgan's Brigade Capital was right behind this move, as the fund said goodbye to about $44.9 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 3 funds by the end of the third quarter.

Let's check out hedge fund activity in other stocks similar to Caesars Entertainment Corp (NASDAQ:CZR). We will take a look at ON Semiconductor Corporation (NASDAQ:ON), Zions Bancorporation, National Association (NASDAQ:ZION), Kilroy Realty Corp (NYSE:KRC), and PTC Inc (NASDAQ:PTC). This group of stocks' market caps resemble CZR's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ON,22,428054,-4 ZION,29,468677,-6 KRC,23,218142,7 PTC,29,809421,6 Average,25.75,481074,0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $481 million. That figure was $3756 million in CZR's case. Zions Bancorporation, National Association (NASDAQ:ZION) is the most popular stock in this table. On the other hand ON Semiconductor Corporation (NASDAQ:ON) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks Caesars Entertainment Corp (NASDAQ:CZR) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on CZR as the stock returned 100% so far in 2019 (through 12/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

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

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