While the market driven by short-term sentiment influenced by the accomodative interest rate environment in the US, increasing oil prices and deteriorating expectations towards the resolution of the trade war with China, many smart money investors kept their cautious approach regarding the current bull run in the second quarter and hedging or reducing many of their long positions. Some fund managers like this one are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Red Rock Resorts, Inc. (NASDAQ:RRR).
Red Rock Resorts, Inc. (NASDAQ:RRR) investors should pay attention to a decrease in activity from the world's largest hedge funds lately. RRR was in 16 hedge funds' portfolios at the end of the second quarter of 2019. There were 17 hedge funds in our database with RRR positions at the end of the previous quarter. Our calculations also showed that RRR isn't among the 30 most popular stocks among hedge funds (view the video below). 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. Let's take a gander at the fresh hedge fund action surrounding Red Rock Resorts, Inc. (NASDAQ:RRR).
What have hedge funds been doing with Red Rock Resorts, Inc. (NASDAQ:RRR)?
Heading into the third quarter of 2019, a total of 16 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in RRR over the last 16 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
More specifically, Diamond Hill Capital was the largest shareholder of Red Rock Resorts, Inc. (NASDAQ:RRR), with a stake worth $147.9 million reported as of the end of March. Trailing Diamond Hill Capital was PAR Capital Management, which amassed a stake valued at $35.4 million. Lomas Capital Management, Serengeti Asset Management, and Millennium Management were also very fond of the stock, giving the stock large weights in their portfolios.
Due to the fact that Red Rock Resorts, Inc. (NASDAQ:RRR) has faced a decline in interest from the aggregate hedge fund industry, it's safe to say that there were a few hedgies that elected to cut their positions entirely in the second quarter. It's worth mentioning that Steve Cohen's Point72 Asset Management dumped the biggest investment of the "upper crust" of funds monitored by Insider Monkey, comprising about $11.8 million in call options. Steve Cohen's fund, Point72 Asset Management, also said goodbye to its call options, about $7.8 million worth. These bearish behaviors are important to note, as total hedge fund interest dropped by 1 funds in the second quarter.
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 Apollo Commercial Real Estate Finance, Inc. (NYSE:ARI), Arrowhead Pharmaceuticals, Inc. (NASDAQ:ARWR), The Geo Group, Inc. (NYSE:GEO), and Agree Realty Corporation (NYSE:ADC). This group of stocks' market caps are similar to RRR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ARI,13,68424,2 ARWR,16,240028,0 GEO,20,112073,2 ADC,11,97389,3 Average,15,129479,1.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $129 million. That figure was $318 million in RRR's case. The Geo Group, Inc. (NYSE:GEO) is the most popular stock in this table. On the other hand Agree Realty Corporation (NYSE:ADC) is the least popular one with only 11 bullish hedge fund positions. Red Rock Resorts, Inc. (NASDAQ:RRR) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but 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 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately RRR wasn't nearly as popular as these 20 stocks and hedge funds that were betting on RRR were disappointed as the stock returned -5% 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 so far this year.
Disclosure: None. This article was originally published at Insider Monkey.