There are several ways to beat the market, and investing in small cap stocks has historically been one of them. We like to improve the odds of beating the market further by examining what famous hedge fund operators such as Jeff Ubben, George Soros and Carl Icahn think. Those hedge fund operators make billions of dollars each year by hiring the best and the brightest to do research on stocks, including small cap stocks that big brokerage houses simply don't cover. Because of Carl Icahn and other elite funds' exemplary historical records, we pay attention to their small cap picks. In this article, we use hedge fund filing data to analyze Penn National Gaming, Inc (NASDAQ:PENN).
Is Penn National Gaming, Inc (NASDAQ:PENN) the right investment to pursue these days? The best stock pickers are in a pessimistic mood. The number of long hedge fund positions retreated by 4 recently. Our calculations also showed that PENN isn't among the 30 most popular stocks among hedge funds (see the video below). PENN was in 20 hedge funds' portfolios at the end of the second quarter of 2019. There were 24 hedge funds in our database with PENN holdings at the end of the previous quarter. 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' 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 25.7% through September 30, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, 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. We're going to analyze the key hedge fund action regarding Penn National Gaming, Inc (NASDAQ:PENN).
Hedge fund activity in Penn National Gaming, Inc (NASDAQ:PENN)
At the end of the second quarter, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -17% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PENN over the last 16 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, HG Vora Capital Management was the largest shareholder of Penn National Gaming, Inc (NASDAQ:PENN), with a stake worth $111.7 million reported as of the end of March. Trailing HG Vora Capital Management was Blue Harbour Group, which amassed a stake valued at $58 million. Balyasny Asset Management, Citadel Investment Group, and SG Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Penn National Gaming, Inc (NASDAQ:PENN) has faced a decline in interest from the aggregate hedge fund industry, we can see that there is a sect of hedge funds that slashed their entire stakes last quarter. Intriguingly, Alexander Mitchell's Scopus Asset Management said goodbye to the biggest stake of all the hedgies tracked by Insider Monkey, totaling close to $20.1 million in stock, and Robert B. Gillam's McKinley Capital Management was right behind this move, as the fund said goodbye to about $7.8 million worth. These bearish behaviors are important to note, as total hedge fund interest fell by 4 funds last quarter.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Penn National Gaming, Inc (NASDAQ:PENN) but similarly valued. We will take a look at Acadia Realty Trust (NYSE:AKR), Granite Real Estate Investment Trust (NYSE:GRP), Innospec Inc. (NASDAQ:IOSP), and Carpenter Technology Corporation (NYSE:CRS). All of these stocks' market caps resemble PENN's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AKR,13,108818,3 GRP,11,114835,-2 IOSP,13,72763,-1 CRS,12,61839,-1 Average,12.25,89564,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $90 million. That figure was $269 million in PENN's case. Acadia Realty Trust (NYSE:AKR) is the most popular stock in this table. On the other hand Granite Real Estate Investment Trust (NYSE:GRP) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Penn National Gaming, Inc (NASDAQ:PENN) 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 PENN wasn't nearly as popular as these 20 stocks and hedge funds that were betting on PENN were disappointed as the stock returned -3.3% 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.