Is Melco Resorts & Entertainment Limited (NASDAQ:MLCO) a good bet right now? We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Melco Resorts & Entertainment Limited (NASDAQ:MLCO) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 22 hedge funds' portfolios at the end of June. At the end of this article we will also compare MLCO to other stocks including The Williams Companies, Inc. (NYSE:WMB), Welltower Inc. (NYSE:WELL), and Yum! Brands, Inc. (NYSE:YUM) to get a better sense of its popularity.
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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Unlike some fund managers who are betting on Dow reaching 40000 in a year, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to take a look at the recent hedge fund action encompassing Melco Resorts & Entertainment Limited (NASDAQ:MLCO).
What does smart money think about Melco Resorts & Entertainment Limited (NASDAQ:MLCO)?
Heading into the third quarter of 2019, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. By comparison, 35 hedge funds held shares or bullish call options in MLCO a year ago. 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, Platinum Asset Management was the largest shareholder of Melco Resorts & Entertainment Limited (NASDAQ:MLCO), with a stake worth $79.7 million reported as of the end of March. Trailing Platinum Asset Management was Citadel Investment Group, which amassed a stake valued at $49 million. Indus Capital, Point72 Asset Management, and Tremblant Capital were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Melco Resorts & Entertainment Limited (NASDAQ:MLCO) has faced bearish sentiment from hedge fund managers, it's easy to see that there were a few funds that slashed their entire stakes last quarter. At the top of the heap, Glenn Russell Dubin's Highbridge Capital Management dumped the largest investment of the 750 funds monitored by Insider Monkey, worth an estimated $15 million in stock. Ward Davis and Brian Agnew's fund, Caerus Global Investors, also dumped its stock, about $2.3 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's now take a look at 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 The Williams Companies, Inc. (NYSE:WMB), Welltower Inc. (NYSE:WELL), Yum! Brands, Inc. (NYSE:YUM), and Advanced Micro Devices, Inc. (NASDAQ:AMD). This group of stocks' market values are similar to MLCO's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WMB,34,1075157,2 WELL,17,558316,-6 YUM,30,988108,-2 AMD,41,755780,4 Average,30.5,844340,-0.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.5 hedge funds with bullish positions and the average amount invested in these stocks was $844 million. That figure was $494 million in MLCO's case. Advanced Micro Devices, Inc. (NASDAQ:AMD) is the most popular stock in this table. On the other hand Welltower Inc. (NYSE:WELL) is the least popular one with only 17 bullish hedge fund positions. Melco Resorts & Entertainment Limited (NASDAQ:MLCO) is not the least popular stock in this group but hedge fund interest is still below average. 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 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately MLCO wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MLCO investors were disappointed as the stock returned -10% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks (see the video below) among hedge funds as many of these stocks already outperformed the market so far in 2019. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.