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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Full House Resorts, Inc. (NASDAQ:FLL).
Is FLL a good stock to buy now? Full House Resorts, Inc. (NASDAQ:FLL) was in 8 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistics is 9. FLL investors should be aware of an increase in hedge fund sentiment lately. There were 7 hedge funds in our database with FLL holdings at the end of June. Our calculations also showed that FLL isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks).
Video: Watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 66 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Brian Gustavson of 1060 Capital
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. 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 website. Keeping this in mind we're going to go over the new hedge fund action encompassing Full House Resorts, Inc. (NASDAQ:FLL).
Hedge fund activity in Full House Resorts, Inc. (NASDAQ:FLL)
At the end of the third quarter, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in FLL over the last 21 quarters. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Full House Resorts, Inc. (NASDAQ:FLL), with a stake worth $2.4 million reported as of the end of September. Trailing Renaissance Technologies was GAMCO Investors, which amassed a stake valued at $0.9 million. Fairpointe Capital, Balyasny Asset Management, and 1060 Capital Management 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 1060 Capital Management allocated the biggest weight to Full House Resorts, Inc. (NASDAQ:FLL), around 0.18% of its 13F portfolio. Fairpointe Capital is also relatively very bullish on the stock, setting aside 0.07 percent of its 13F equity portfolio to FLL.
Now, some big names were breaking ground themselves. 1060 Capital Management, managed by Brian Gustavson and Andrew Haley, created the most outsized position in Full House Resorts, Inc. (NASDAQ:FLL). 1060 Capital Management had $0.1 million invested in the company at the end of the quarter. Israel Englander's Millennium Management also initiated a $0.1 million position during the quarter.
Let's check out hedge fund activity in other stocks similar to Full House Resorts, Inc. (NASDAQ:FLL). These stocks are Bioanalytical Systems, Inc. (NASDAQ:BASI), Capstone Turbine Corporation (NASDAQ:CPST), Gulf Resources, Inc. (NASDAQ:GURE), PDS Biotechnology Corporation (NASDAQ:PDSB), Kentucky First Federal Bancorp (NASDAQ:KFFB), Organovo Holdings Inc (NASDAQ:ONVO), and VistaGen Therapeutics, Inc. (NASDAQ:VTGN). This group of stocks' market values match FLL's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BASI,1,2390,0 CPST,4,1545,1 GURE,1,2008,0 PDSB,3,2807,1 KFFB,1,428,0 ONVO,2,3477,-1 VTGN,2,106,1 Average,2,1823,0.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 2 hedge funds with bullish positions and the average amount invested in these stocks was $2 million. That figure was $4 million in FLL's case. Capstone Turbine Corporation (NASDAQ:CPST) is the most popular stock in this table. On the other hand Bioanalytical Systems, Inc. (NASDAQ:BASI) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Full House Resorts, Inc. (NASDAQ:FLL) is more popular among hedge funds. Our overall hedge fund sentiment score for FLL is 82.7. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks returned 31.6% in 2020 through December 2nd but still managed to beat the market by 16 percentage points. Hedge funds were also right about betting on FLL as the stock returned 86.6% since the end of September (through 12/2) 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.
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Disclosure: None. This article was originally published at Insider Monkey.