Hedge fund interest in Red Rock Resorts, Inc. (NASDAQ:RRR) shares was flat at the end of last quarter. This is usually a negative indicator. The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as Corporate Office Properties Trust (NYSE:OFC), Louisiana-Pacific Corporation (NYSE:LPX), and Tenable Holdings, Inc. (NASDAQ:TENB) to gather more data points.
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 40 percentage points since May 2014 through May 30, 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 30.9% through May 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
[caption id="attachment_747408" align="aligncenter" width="473"] Paul Reeder of PAR Capital[/caption]
We're going to review the fresh hedge fund action surrounding Red Rock Resorts, Inc. (NASDAQ:RRR).
How have hedgies been trading Red Rock Resorts, Inc. (NASDAQ:RRR)?
At the end of the first quarter, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from one quarter earlier. By comparison, 21 hedge funds held shares or bullish call options in RRR 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.
More specifically, Diamond Hill Capital was the largest shareholder of Red Rock Resorts, Inc. (NASDAQ:RRR), with a stake worth $162.6 million reported as of the end of March. Trailing Diamond Hill Capital was Lomas Capital Management, which amassed a stake valued at $66.6 million. PAR Capital Management, Serengeti Asset Management, and Marshall Wace LLP were also very fond of the stock, giving the stock large weights in their portfolios.
Because Red Rock Resorts, Inc. (NASDAQ:RRR) has experienced bearish sentiment from the entirety of the hedge funds we track, it's easy to see that there was a specific group of funds that elected to cut their positions entirely in the third quarter. It's worth mentioning that D. E. Shaw's D E Shaw said goodbye to the biggest investment of all the hedgies tracked by Insider Monkey, totaling about $7.9 million in call options, and Anthony Joseph Vaccarino's North Fourth Asset Management was right behind this move, as the fund dumped about $2.6 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Red Rock Resorts, Inc. (NASDAQ:RRR) but similarly valued. These stocks are Corporate Office Properties Trust (NYSE:OFC), Louisiana-Pacific Corporation (NYSE:LPX), Tenable Holdings, Inc. (NASDAQ:TENB), and Houlihan Lokey Inc (NYSE:HLI). This group of stocks' market caps resemble RRR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position OFC,12,156974,-11 LPX,28,461781,-3 TENB,20,153935,5 HLI,14,132102,-4 Average,18.5,226198,-3.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $226 million. That figure was $378 million in RRR's case. Louisiana-Pacific Corporation (NYSE:LPX) is the most popular stock in this table. On the other hand Corporate Office Properties Trust (NYSE:OFC) is the least popular one with only 12 bullish hedge fund positions. Red Rock Resorts, Inc. (NASDAQ:RRR) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately RRR wasn't nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); RRR investors were disappointed as the stock returned -15.4% during the same time period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.