Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published this article and predicted that US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With the first-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the second quarter. One of these stocks was MGM Resorts International (NYSE:MGM).
Is MGM Resorts International (NYSE:MGM) a buy here? The best stock pickers are getting less optimistic. The number of bullish hedge fund positions fell by 2 lately. Our calculations also showed that MGM isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
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 41 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.
[caption id="attachment_260193" align="aligncenter" width="399"] Keith Meister of Corvex Capital[/caption]
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind we're going to check out the new hedge fund action surrounding MGM Resorts International (NYSE:MGM).
What does smart money think about MGM Resorts International (NYSE:MGM)?
At Q4's end, a total of 50 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards MGM over the last 18 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Corvex Capital was the largest shareholder of MGM Resorts International (NYSE:MGM), with a stake worth $696.6 million reported as of the end of September. Trailing Corvex Capital was Canyon Capital Advisors, which amassed a stake valued at $263.1 million. Renaissance Technologies, Two Sigma Advisors, and Blue Harbour Group 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 Corvex Capital allocated the biggest weight to MGM Resorts International (NYSE:MGM), around 32.13% of its 13F portfolio. Blue Harbour Group is also relatively very bullish on the stock, setting aside 10.61 percent of its 13F equity portfolio to MGM.
Seeing as MGM Resorts International (NYSE:MGM) has experienced a decline in interest from hedge fund managers, it's safe to say that there is a sect of funds that slashed their full holdings by the end of the third quarter. At the top of the heap, Steve Cohen's Point72 Asset Management cut the largest position of the "upper crust" of funds watched by Insider Monkey, worth an estimated $38.8 million in stock, and John Khoury's Long Pond Capital was right behind this move, as the fund cut about $25.2 million worth. These moves are interesting, as aggregate hedge fund interest fell by 2 funds by the end of the third quarter.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as MGM Resorts International (NYSE:MGM) but similarly valued. These stocks are Nucor Corporation (NYSE:NUE), 0, Credicorp Ltd. (NYSE:BAP), and Equifax Inc. (NYSE:EFX). This group of stocks' market values match MGM's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NUE,26,237288,-2 PEAK,26,525191,-3 BAP,22,612424,-6 EFX,32,1615426,4 Average,26.5,747582,-1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $748 million. That figure was $2231 million in MGM's case. Equifax Inc. (NYSE:EFX) is the most popular stock in this table. On the other hand Credicorp Ltd. (NYSE:BAP) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks MGM Resorts International (NYSE:MGM) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 12.9% in 2020 through March 9th and still beat the market by 1.9 percentage points. Unfortunately MGM wasn't nearly as popular as these 20 stocks and hedge funds that were betting on MGM were disappointed as the stock returned -45.9% during the first two months of 2020 (through March 9th) 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 most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.