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Did Hedge Funds Drop The Ball On Caesars Entertainment Corp (CZR) ?

Reymerlyn Martin

"Market conditions are changing. The continued rise in interest rates suggests we are in the early stages of a bond bear market, which could intensify as central banks withdraw liquidity. The receding tide of liquidity will start to reveal more rocks beyond what has been exposed in emerging markets so far, and the value of a value discipline will be in avoiding the biggest capital-destroying rocks. If a rock emerges on the crowded shore of U.S. momentum, it could result in a major liquidity challenge, as momentum is often most intense on the downside as a crowded trade reverses. So investors are facing a large potential trade-off right now: continue to bet on the current dominance of momentum and the S&P 500, or bet on change and take an active value bet in names with attractive value and optionality, but with negative momentum," said Clearbridge Investments in its market commentary. We aren't sure whether long-term interest rates will top 5% and value stocks outperform growth, but we follow hedge fund investor letters to understand where the markets and stocks might be going. This article will lay out and discuss the hedge fund and institutional investor sentiment towards Caesars Entertainment Corp (NASDAQ:CZR).

Is Caesars Entertainment Corp (NASDAQ:CZR) a bargain? The best stock pickers are taking a pessimistic view. The number of bullish hedge fund bets were cut by 4 recently. Our calculations also showed that CZR isn't among the 30 most popular stocks among hedge funds. CZR was in 58 hedge funds' portfolios at the end of the fourth quarter of 2018. There were 62 hedge funds in our database with CZR holdings at the end of the previous quarter.

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. 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 market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Howard Marks OAKTREE CAPITAL MANAGEMENT

We're going to take a peek at the fresh hedge fund action regarding Caesars Entertainment Corp (NASDAQ:CZR).

How are hedge funds trading Caesars Entertainment Corp (NASDAQ:CZR)?

Heading into the first quarter of 2019, a total of 58 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the previous quarter. On the other hand, there were a total of 62 hedge funds with a bullish position in CZR a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

CZR_apr2019

The largest stake in Caesars Entertainment Corp (NASDAQ:CZR) was held by Canyon Capital Advisors, which reported holding $475.1 million worth of stock at the end of September. It was followed by Soros Fund Management with a $225.2 million position. Other investors bullish on the company included Silver Point Capital, Senator Investment Group, and Valinor Management LLC.

Seeing as Caesars Entertainment Corp (NASDAQ:CZR) has experienced a decline in interest from hedge fund managers, we can see that there lies a certain "tier" of funds who sold off their entire stakes last quarter. Interestingly, Parag Vora's HG Vora Capital Management cut the biggest investment of all the hedgies tracked by Insider Monkey, worth close to $353.6 million in stock. Jeffrey Gates's fund, Gates Capital Management, also dropped its stock, about $68.8 million worth. These moves are important to note, as total hedge fund interest fell by 4 funds last quarter.

Let's now review hedge fund activity in other stocks similar to Caesars Entertainment Corp (NASDAQ:CZR). These stocks are Webster Financial Corporation (NYSE:WBS), Chemed Corporation (NYSE:CHE), Teradata Corporation (NYSE:TDC), and Catalent Inc (NYSE:CTLT). 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 WBS,26,316331,-2 CHE,24,389548,1 TDC,21,211609,-2 CTLT,19,235857,-4 Average,22.5,288336,-1.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $288 million. That figure was $2224 million in CZR's case. Webster Financial Corporation (NYSE:WBS) is the most popular stock in this table. On the other hand Catalent Inc (NYSE:CTLT) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Caesars Entertainment Corp (NASDAQ:CZR) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Hedge funds were also right about betting on CZR as the stock returned 39.5% 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.

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

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