At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Caesars Entertainment Corp (NASDAQ:CZR) at the end of the second quarter and determine whether the smart money was really smart about this stock.
Caesars Entertainment Corp (NASDAQ:CZR) was in 50 hedge funds' portfolios at the end of June. The all time high for this statistics is 66. CZR has experienced an increase in enthusiasm from smart money of late. There were 47 hedge funds in our database with CZR positions at the end of the first quarter. Our calculations also showed that CZR isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks).
Video: 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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Howard Marks OAKTREE CAPITAL MANAGEMENT
Howard Marks of Oaktree Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now let's take a look at the key hedge fund action surrounding Caesars Entertainment Corp (NASDAQ:CZR).
How have hedgies been trading Caesars Entertainment Corp (NASDAQ:CZR)?
At second quarter's end, a total of 50 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 6% from the previous quarter. By comparison, 48 hedge funds held shares or bullish call options in CZR a year ago. With hedge funds' capital changing hands, there exists an "upper tier" of noteworthy hedge fund managers who were increasing their stakes significantly (or already accumulated large positions).
Is CZR A Good Stock To Buy?
The largest stake in Caesars Entertainment Corp (NASDAQ:CZR) was held by Icahn Capital LP, which reported holding $1385.9 million worth of stock at the end of September. It was followed by Canyon Capital Advisors with a $328.8 million position. Other investors bullish on the company included Sand Grove Capital Partners, LMR Partners, and Oaktree Capital Management. In terms of the portfolio weights assigned to each position Sand Grove Capital Partners allocated the biggest weight to Caesars Entertainment Corp (NASDAQ:CZR), around 46.21% of its 13F portfolio. Beryl Capital Management is also relatively very bullish on the stock, setting aside 34.48 percent of its 13F equity portfolio to CZR.
With a general bullishness amongst the heavyweights, some big names have been driving this bullishness. LMR Partners, managed by Ben Levine, Andrew Manuel and Stefan Renold, assembled the most valuable position in Caesars Entertainment Corp (NASDAQ:CZR). LMR Partners had $185.3 million invested in the company at the end of the quarter. Farallon Capital also initiated a $97.2 million position during the quarter. The other funds with brand new CZR positions are Anand Parekh's Alyeska Investment Group, Clint Carlson's Carlson Capital, and Andrew Weiss's Weiss Asset Management.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Caesars Entertainment Corp (NASDAQ:CZR) but similarly valued. These stocks are MGM Resorts International (NYSE:MGM), Carnival Corporation & plc (NYSE:CUK), Pinnacle West Capital Corporation (NYSE:PNW), Everest Re Group Ltd (NYSE:RE), Phillips 66 Partners LP (NYSE:PSXP), Ionis Pharmaceuticals, Inc. (NASDAQ:IONS), and Albemarle Corporation (NYSE:ALB). 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 MGM,32,1006863,-18 CUK,14,72014,5 PNW,25,753260,0 RE,29,585163,2 PSXP,6,29854,1 IONS,23,387779,1 ALB,25,66986,1 Average,22,414560,-1.1 [/table]
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $415 million. That figure was $3912 million in CZR's case. MGM Resorts International (NYSE:MGM) is the most popular stock in this table. On the other hand Phillips 66 Partners LP (NYSE:PSXP) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Caesars Entertainment Corp (NASDAQ:CZR) is more popular among hedge funds. Our overall hedge fund sentiment score for CZR is 80.7. 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 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 33% in 2020 through the end of August but still managed to beat the market by 23.2 percentage points. Hedge funds were also right about betting on CZR as the stock outperformed the market by an even larger margin after closing the merger in July. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.
