Hedge Funds Have Never Been This Bullish On SeaWorld Entertainment Inc (SEAS)

Debasis Saha

Sat, Mar 28, 2020, 6:52 PM 6 min read

Coronavirus is probably the #1 concern in investors' minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. At Insider Monkey, we pore over the filings of nearly 835 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we've gathered as a result gives us access to a wealth of collective knowledge based on these firms' portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not SeaWorld Entertainment Inc (NYSE:SEAS) makes for a good investment right now.

SeaWorld Entertainment Inc (NYSE:SEAS) shareholders have witnessed an increase in support from the world's most elite money managers in recent months. SEAS was in 39 hedge funds' portfolios at the end of December. There were 35 hedge funds in our database with SEAS holdings at the end of the previous quarter. Our calculations also showed that SEAS isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by more than 41 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 35.3% through March 3rd. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Gabriel Plotkin Melvin Capital Management

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic's significance before most investors. With all of this in mind we're going to take a glance at the key hedge fund action regarding SeaWorld Entertainment Inc (NYSE:SEAS).

What does smart money think about SeaWorld Entertainment Inc (NYSE:SEAS)?

Heading into the first quarter of 2020, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 11% from the third quarter of 2019. By comparison, 29 hedge funds held shares or bullish call options in SEAS a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Hill Path Capital held the most valuable stake in SeaWorld Entertainment Inc (NYSE:SEAS), which was worth $862.7 million at the end of the third quarter. On the second spot was Renaissance Technologies which amassed $81.7 million worth of shares. Simcoe Capital Management, Melvin Capital Management, and Arrowstreet Capital 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 Hill Path Capital allocated the biggest weight to SeaWorld Entertainment Inc (NYSE:SEAS), around 90.91% of its 13F portfolio. Simcoe Capital Management is also relatively very bullish on the stock, earmarking 12.76 percent of its 13F equity portfolio to SEAS.

Now, some big names have been driving this bullishness. MIC Capital Partners, managed by Mubadala Investment, created the most outsized position in SeaWorld Entertainment Inc (NYSE:SEAS). MIC Capital Partners had $22.7 million invested in the company at the end of the quarter. Guy Shahar's DSAM Partners also initiated a $18.5 million position during the quarter. The other funds with new positions in the stock are Dmitry Balyasny's Balyasny Asset Management, James Parsons's Junto Capital Management, and Harry Gail's Harspring Capital Management.

Let's also examine hedge fund activity in other stocks similar to SeaWorld Entertainment Inc (NYSE:SEAS). We will take a look at Delek US Holdings, Inc. (NYSE:DK), Domtar Corporation (NYSE:UFS), Hillenbrand, Inc. (NYSE:HI), and First Majestic Silver Corp (NYSE:AG). This group of stocks' market valuations are similar to SEAS's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DK,19,61378,-3 UFS,26,147091,3 HI,24,122068,-1 AG,16,84709,1 Average,21.25,103812,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.25 hedge funds with bullish positions and the average amount invested in these stocks was $104 million. That figure was $1284 million in SEAS's case. Domtar Corporation (NYSE:UFS) is the most popular stock in this table. On the other hand First Majestic Silver Corp (NYSE:AG) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks SeaWorld Entertainment Inc (NYSE:SEAS) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th and still beat the market by 5.5 percentage points. Unfortunately SEAS wasn't nearly as popular as these 20 stocks and hedge funds that were betting on SEAS were disappointed as the stock returned -51.4% during the first two and a half months of 2020 (through March 25th) 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 most of these stocks already outperformed the market in Q1.