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Is MLCO Stock A Buy or Sell?

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·5 min read
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Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Melco Resorts & Entertainment Limited (NASDAQ:MLCO).

Is MLCO stock a buy? Money managers were in a bearish mood. The number of bullish hedge fund bets were cut by 4 lately. Melco Resorts & Entertainment Limited (NASDAQ:MLCO) was in 30 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 35. Our calculations also showed that MLCO isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 34 hedge funds in our database with MLCO holdings at the end of September.

In today’s marketplace there are many methods stock market investors employ to analyze publicly traded companies. A duo of the most underrated methods are hedge fund and insider trading sentiment. Our experts have shown that, historically, those who follow the best picks of the best hedge fund managers can outpace the S&P 500 by a healthy amount (see the details here).

Michael Gelband of ExodusPoint Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we heard that billionaire Peter Thiel is backing this psychedelic-drug startup. So, we are taking a closer look at this space. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. 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 website. Keeping this in mind let's take a peek at the recent hedge fund action surrounding Melco Resorts & Entertainment Limited (NASDAQ:MLCO).

Do Hedge Funds Think MLCO Is A Good Stock To Buy Now?

At Q4's end, a total of 30 of the hedge funds tracked by Insider Monkey were long this stock, a change of -12% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards MLCO over the last 22 quarters. With hedge funds' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

More specifically, Broad Peak Investment Holdings was the largest shareholder of Melco Resorts & Entertainment Limited (NASDAQ:MLCO), with a stake worth $115.5 million reported as of the end of December. Trailing Broad Peak Investment Holdings was King Street Capital, which amassed a stake valued at $98.3 million. Tremblant Capital, Arrowstreet Capital, and Lomas Capital Management 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 King Street Capital allocated the biggest weight to Melco Resorts & Entertainment Limited (NASDAQ:MLCO), around 15.06% of its 13F portfolio. Brightlight Capital is also relatively very bullish on the stock, earmarking 10.17 percent of its 13F equity portfolio to MLCO.

Due to the fact that Melco Resorts & Entertainment Limited (NASDAQ:MLCO) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there lies a certain "tier" of fund managers that slashed their positions entirely by the end of the fourth quarter. Intriguingly, Eashwar Krishnan's Tybourne Capital Management dropped the biggest position of the 750 funds monitored by Insider Monkey, totaling about $68.3 million in stock. James Dinan's fund, York Capital Management, also sold off its stock, about $11.1 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 4 funds by the end of the fourth quarter.

Let's also examine 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 Pentair plc (NYSE:PNR), Aspen Technology, Inc. (NASDAQ:AZPN), CyrusOne Inc (NASDAQ:CONE), Formula One Group (NASDAQ:FWONA), NiSource Inc. (NYSE:NI), Watsco Inc (NYSE:WSO), and IAA, Inc. (NYSE:IAA). This group of stocks' market caps are closest to MLCO's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PNR,29,664762,-5 AZPN,29,1175533,3 CONE,21,280933,-9 FWONA,21,259250,2 NI,23,163551,-1 WSO,24,243018,-5 IAA,35,1547250,-1 Average,26,619185,-2.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $619 million. That figure was $766 million in MLCO's case. IAA, Inc. (NYSE:IAA) is the most popular stock in this table. On the other hand CyrusOne Inc (NASDAQ:CONE) is the least popular one with only 21 bullish hedge fund positions. Melco Resorts & Entertainment Limited (NASDAQ:MLCO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MLCO is 58.9. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.2% in 2021 through April 12th and still beat the market by 1.5 percentage points. Hedge funds were also right about betting on MLCO, though not to the same extent, as the stock returned 7.5% since Q4 (through April 12th) and outperformed the market as well.

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Disclosure: None. This article was originally published at Insider Monkey.

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