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Hedge funds and large money managers usually invest with a focus on the long-term horizon and, therefore, short-lived dips or bumps on the charts usually don't make them change their opinion towards a company. This time it may be different. The coronavirus pandemic destroyed the high correlations among major industries and asset classes. We are now in a stock pickers market where fundamentals of a stock have more effect on the price than the overall direction of the market. As a result we observe sudden and large changes in hedge fund positions depending on the news flow. Let’s take a look at the hedge fund sentiment towards Melco Resorts & Entertainment Limited (NASDAQ:MLCO) to find out whether there were any major changes in hedge funds' views.
Is Melco Resorts & Entertainment Limited (NASDAQ:MLCO) a superb investment now? The smart money was becoming less hopeful. The number of long hedge fund positions were cut by 2 in recent months. Melco Resorts & Entertainment Limited (NASDAQ:MLCO) was in 27 hedge funds' portfolios at the end of September. The all time high for this statistic is 35. Our calculations also showed that MLCO isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings).
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Keeping this in mind we're going to view the recent hedge fund action surrounding Melco Resorts & Entertainment Limited (NASDAQ:MLCO).
Ricky Sandler of Eminence Capital
Do Hedge Funds Think MLCO Is A Good Stock To Buy Now?
At Q3's end, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of -7% from the second quarter of 2021. Below, you can check out the change in hedge fund sentiment towards MLCO over the last 25 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
Among these funds, Eminence Capital held the most valuable stake in Melco Resorts & Entertainment Limited (NASDAQ:MLCO), which was worth $130.6 million at the end of the third quarter. On the second spot was Long Pond Capital which amassed $92.7 million worth of shares. D E Shaw, Citadel Investment Group, and Maplelane Capital 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 Brightlight Capital allocated the biggest weight to Melco Resorts & Entertainment Limited (NASDAQ:MLCO), around 10.29% of its 13F portfolio. Cumberland Associates / Springowl Associates is also relatively very bullish on the stock, dishing out 5.09 percent of its 13F equity portfolio to MLCO.
Since Melco Resorts & Entertainment Limited (NASDAQ:MLCO) has witnessed a decline in interest from the aggregate hedge fund industry, it's easy to see that there was a specific group of hedge funds who sold off their positions entirely by the end of the third quarter. Interestingly, Gabriel Plotkin's Melvin Capital Management said goodbye to the largest stake of the "upper crust" of funds watched by Insider Monkey, valued at about $61.3 million in stock, and Brett Barakett's Tremblant Capital was right behind this move, as the fund sold off about $43.3 million worth. These transactions are interesting, as total hedge fund interest dropped by 2 funds by the end of the third quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Melco Resorts & Entertainment Limited (NASDAQ:MLCO) but similarly valued. We will take a look at Herbalife Nutrition Ltd. (NYSE:HLF), National Beverage Corp. (NASDAQ:FIZZ), Pan American Silver Corp. (NASDAQ:PAAS), PowerSchool Holdings Inc. (NYSE:PWSC), Victorias Secret & Co. (NYSE:VSCO), Wingstop Inc (NASDAQ:WING), and Nomad Foods Limited (NYSE:NOMD). This group of stocks' market valuations are closest to MLCO's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HLF,38,1809059,-2 FIZZ,17,281959,-4 PAAS,22,251670,-2 PWSC,11,2277988,11 VSCO,37,1962390,37 WING,23,213008,-1 NOMD,23,272138,-3 Average,24.4,1009745,5.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.4 hedge funds with bullish positions and the average amount invested in these stocks was $1010 million. That figure was $470 million in MLCO's case. Herbalife Nutrition Ltd. (NYSE:HLF) is the most popular stock in this table. On the other hand PowerSchool Holdings Inc. (NYSE:PWSC) is the least popular one with only 11 bullish hedge fund positions. Melco Resorts & Entertainment Limited (NASDAQ:MLCO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MLCO is 55.8. 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 positive signal but 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 31.1% in 2021 through December 9th and beat the market again by 5.1 percentage points. Unfortunately MLCO wasn't nearly as popular as these 5 stocks and hedge funds that were betting on MLCO were disappointed as the stock returned 1.9% since the end of September (through 12/9) 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 many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.