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Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of September. At Insider Monkey, we follow nearly 900 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Scientific Games Corp (NASDAQ:SGMS), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
Hedge fund interest in Scientific Games Corp (NASDAQ:SGMS) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that SGMS isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings). At the end of this article we will also compare SGMS to other stocks including Box, Inc. (NYSE:BOX), Stamps.com Inc. (NASDAQ:STMP), and AAON, Inc. (NASDAQ:AAON) to get a better sense of its popularity.
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' 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 115 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.
Brian Gustavson of 1060 Capital Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery 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. 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 homepage. With all of this in mind we're going to check out the fresh hedge fund action encompassing Scientific Games Corp (NASDAQ:SGMS).
Do Hedge Funds Think SGMS Is A Good Stock To Buy Now?
Heading into the second quarter of 2021, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the fourth quarter of 2020. On the other hand, there were a total of 22 hedge funds with a bullish position in SGMS a year ago. With hedgies' capital changing hands, there exists a few notable hedge fund managers who were upping their holdings substantially (or already accumulated large positions).
Of the funds tracked by Insider Monkey, Fine Capital Partners, managed by Debra Fine, holds the largest position in Scientific Games Corp (NASDAQ:SGMS). Fine Capital Partners has a $351.3 million position in the stock, comprising 81.4% of its 13F portfolio. On Fine Capital Partners's heels is Rick Slocum of Harvard Management Co, with a $103.2 million position; the fund has 5.8% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that hold long positions include Mark Cohen's Stone House Capital, Peter S. Park's Park West Asset Management and Wilmot B. Harkey and Daniel Mack's Nantahala Capital Management. In terms of the portfolio weights assigned to each position Fine Capital Partners allocated the biggest weight to Scientific Games Corp (NASDAQ:SGMS), around 81.35% of its 13F portfolio. Stone House Capital is also relatively very bullish on the stock, dishing out 73.25 percent of its 13F equity portfolio to SGMS.
Due to the fact that Scientific Games Corp (NASDAQ:SGMS) has witnessed declining sentiment from the smart money, logic holds that there was a specific group of money managers that decided to sell off their full holdings heading into Q2. Intriguingly, Ryan Caldwell's Chiron Investment Management cut the largest stake of the "upper crust" of funds watched by Insider Monkey, comprising close to $13.2 million in stock. Peter Muller's fund, PDT Partners, also dumped its stock, about $1 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 go over hedge fund activity in other stocks - not necessarily in the same industry as Scientific Games Corp (NASDAQ:SGMS) but similarly valued. These stocks are Box, Inc. (NYSE:BOX), Stamps.com Inc. (NASDAQ:STMP), AAON, Inc. (NASDAQ:AAON), Sabra Health Care REIT Inc (NASDAQ:SBRA), Ameris Bancorp (NASDAQ:ABCB), Franklin Electric Co., Inc. (NASDAQ:FELE), and Univar Solutions Inc (NYSE:UNVR). This group of stocks' market values resemble SGMS's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BOX,43,863055,12 STMP,32,578028,-6 AAON,16,47793,3 SBRA,21,112267,1 ABCB,16,101268,-2 FELE,20,209341,3 UNVR,25,742227,-6 Average,24.7,379140,0.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.7 hedge funds with bullish positions and the average amount invested in these stocks was $379 million. That figure was $785 million in SGMS's case. Box, Inc. (NYSE:BOX) is the most popular stock in this table. On the other hand AAON, Inc. (NASDAQ:AAON) is the least popular one with only 16 bullish hedge fund positions. Scientific Games Corp (NASDAQ:SGMS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SGMS is 38.9. 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 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 23.8% in 2021 through July 16th and still beat the market by 7.7 percentage points. A small number of hedge funds were also right about betting on SGMS as the stock returned 58.3% since the end of the first quarter (through 7/16) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.