Investing in hedge funds can bring large profits, but it’s not for everybody, since hedge funds are available only for high-net-worth individuals. They generate significant returns for investors to justify their large fees and they allocate a lot of time and employ complex research processes to determine the best stocks to invest in. A particularly interesting group of stocks that hedge funds like is the small-caps. The huge amount of capital does not allow hedge funds to invest a lot in small-caps, but our research showed that their most popular small-cap ideas are less efficiently priced and generate stronger returns than their large- and mega-cap picks and the broader market. That is why we pay special attention to the hedge fund activity in the small-cap space. Nevertheless, it is also possible to find underpriced large-cap stocks by following the hedge funds' moves.
Is Caesars Entertainment Corp (NASDAQ:CZR) a healthy stock for your portfolio? Hedge funds are in a bearish mood. The number of bullish hedge fund positions were trimmed by 9 lately. Our calculations also showed that CZR isn't among the 30 most popular stocks among hedge funds (view the video below). CZR was in 48 hedge funds' portfolios at the end of June. There were 57 hedge funds in our database with CZR positions at the end of the previous quarter. Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are several methods market participants employ to value stocks. Two of the most innovative methods are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the best picks of the elite money managers can outpace the broader indices by a significant margin (see the details here).
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. Let's check out the recent hedge fund action surrounding Caesars Entertainment Corp (NASDAQ:CZR).
What does smart money think about Caesars Entertainment Corp (NASDAQ:CZR)?
At the end of the second quarter, a total of 48 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -16% from the previous quarter. The graph below displays the number of hedge funds with bullish position in CZR over the last 16 quarters. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Icahn Capital LP held the most valuable stake in Caesars Entertainment Corp (NASDAQ:CZR), which was worth $1173.1 million at the end of the second quarter. On the second spot was Canyon Capital Advisors which amassed $737.4 million worth of shares. Moreover, Soros Fund Management, Oaktree Capital Management, and Magnetar Capital were also bullish on Caesars Entertainment Corp (NASDAQ:CZR), allocating a large percentage of their portfolios to this stock.
Seeing as Caesars Entertainment Corp (NASDAQ:CZR) has faced bearish sentiment from the aggregate hedge fund industry, logic holds that there lies a certain "tier" of fund managers who sold off their positions entirely in the second quarter. It's worth mentioning that Parag Vora's HG Vora Capital Management cut the largest stake of the 750 funds monitored by Insider Monkey, worth close to $282.4 million in stock. Robert Henry Lynch's fund, Aristeia Capital, also cut its stock, about $72.6 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 9 funds in the second quarter.
Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Caesars Entertainment Corp (NASDAQ:CZR) but similarly valued. These stocks are Pearson PLC (NYSE:PSO), News Corp (NASDAQ:NWS), Spirit AeroSystems Holdings, Inc. (NYSE:SPR), and Nielsen Holdings plc (NYSE:NLSN). This group of stocks' market valuations are similar to CZR's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PSO,4,7111,0 NWS,9,40127,-1 SPR,31,2042908,2 NLSN,35,1457332,2 Average,19.75,886870,0.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $887 million. That figure was $3655 million in CZR's case. Nielsen Holdings plc (NYSE:NLSN) is the most popular stock in this table. On the other hand Pearson PLC (NYSE:PSO) is the least popular one with only 4 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CZR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CZR were disappointed as the stock returned -1.4% 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 among hedge funds as many of these stocks already outperformed the market in Q3.
Disclosure: None. This article was originally published at Insider Monkey.