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Was The Smart Money Right About Caesars Entertainment Inc. (CZR)?

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  • CZR

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 June. 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 Caesars Entertainment Inc. (NASDAQ:CZR), so let’s take a closer look at the sentiment that surrounds it in the current quarter.

Caesars Entertainment Inc. (NASDAQ:CZR) investors should pay attention to a decrease in hedge fund interest lately. Caesars Entertainment Inc. (NASDAQ:CZR) was in 73 hedge funds' portfolios at the end of June. The all time high for this statistic is 76. Our calculations also showed that CZR isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Robert Pohly of Samlyn Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, the demand for helium is soaring and there is a helium supply shortage, so we are checking out stock pitches like this emerging helium stock. We go through lists like the 10 best EV 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. Now we're going to take a look at the recent hedge fund action surrounding Caesars Entertainment Inc. (NASDAQ:CZR).

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

At the end of June, a total of 73 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from the first quarter of 2020. By comparison, 49 hedge funds held shares or bullish call options in CZR a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Is CZR A Good Stock To Buy?
Is CZR A Good Stock To Buy?

More specifically, Millennium Management was the largest shareholder of Caesars Entertainment Inc. (NASDAQ:CZR), with a stake worth $196.1 million reported as of the end of June. Trailing Millennium Management was Samlyn Capital, which amassed a stake valued at $167.2 million. Gates Capital Management, Park West Asset Management, and XN Exponent Advisors 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 Lafitte Capital Management allocated the biggest weight to Caesars Entertainment Inc. (NASDAQ:CZR), around 34.36% of its 13F portfolio. 1060 Capital Management is also relatively very bullish on the stock, designating 16.27 percent of its 13F equity portfolio to CZR.

Because Caesars Entertainment Inc. (NASDAQ:CZR) has experienced a decline in interest from the entirety of the hedge funds we track, it's safe to say that there lies a certain "tier" of money managers who were dropping their full holdings in the second quarter. Intriguingly, David Costen Haley's HBK Investments dumped the biggest position of all the hedgies tracked by Insider Monkey, worth about $187.9 million in stock. Andrew Weiss's fund, Weiss Asset Management, also dropped its stock, about $64.5 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 3 funds in the second quarter.

Let's also examine hedge fund activity in other stocks similar to Caesars Entertainment Inc. (NASDAQ:CZR). We will take a look at Xylem Inc (NYSE:XYL), Fox Corporation (NASDAQ:FOXA), PPL Corporation (NYSE:PPL), 10x Genomics, Inc. (NASDAQ:TXG), PT Telekomunikasi Indonesia (NYSE:TLK), Tractor Supply Company (NASDAQ:TSCO), and Burlington Stores Inc (NYSE:BURL). This group of stocks' market valuations match CZR's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position XYL,23,931677,0 FOXA,35,441270,-3 PPL,23,417630,-2 TXG,28,1447446,5 TLK,5,108737,1 TSCO,38,1374315,9 BURL,43,1690108,11 Average,27.9,915883,3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.9 hedge funds with bullish positions and the average amount invested in these stocks was $916 million. That figure was $1840 million in CZR's case. Burlington Stores Inc (NYSE:BURL) is the most popular stock in this table. On the other hand PT Telekomunikasi Indonesia (NYSE:TLK) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Caesars Entertainment Inc. (NASDAQ:CZR) is more popular among hedge funds. Our overall hedge fund sentiment score for CZR is 80.8. 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 returned 26.3% in 2021 through October 29th but still managed to beat the market by 2.3 percentage points. Hedge funds were also right about betting on CZR as the stock returned 5.5% since the end of June (through 10/29) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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