Do Hedge Funds Love Eldorado Resorts Inc (ERI)?

Reputable billionaire investors such as Nelson Peltz and David Tepper generate exorbitant profits for their wealthy accredited investors (a minimum of $1 million in investable assets would be required to invest in a hedge fund and most successful hedge funds won’t accept your savings unless you commit at least $5 million) by pinpointing winning small-cap stocks. There is little or no publicly-available information at all on some of these small companies, which makes it hard for an individual investor to pin down a winner within the small-cap space. However, hedge funds and other big asset managers can do the due diligence and analysis for you instead, thanks to their highly-skilled research teams and vast resources to conduct an appropriate evaluation process. Looking for potential winners within the small-cap galaxy of stocks? We believe following the smart money is a good starting point.

In this article, we are going to discuss the hedge fund sentiment towards Eldorado Resorts Inc (NASDAQ:ERI). Overall, the sentiment towards the stock remained unchanged during the third quarter. This is usually a negative indicator, although the level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Northstar Realty Europe Corp (NYSE:NRE), New York Mortgage Trust, Inc. (NASDAQ:NYMT), and Manitowoc Company, Inc. (NYSE:MTW) to gather more data points.

We care about hedge fund sentiment because historically hedge funds’ stock picks delivered strong risk adjusted returns. There are certain segments of the market where hedge funds’ stock picks performed much better than its benchmarks. For instance, the 30 most popular mid-cap stocks among the best performing hedge funds returned 18% over the last 12 months outpacing S&P 500 Index by more than 10 percentage points. We developed this strategy 2.5 years ago and started sharing its picks in our quarterly newsletter. It bested the S&P 500 Index ETFs by delivering a solid 39% vs. 22% gain for its benchmarks.

With all of this in mind, let’s go over the new action encompassing Eldorado Resorts Inc (NASDAQ:ERI).

What have hedge funds been doing with Eldorado Resorts Inc (NASDAQ:ERI)?

Heading into the fourth quarter of 2016, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on Eldorado Resorts Inc (NASDAQ:ERI), unchanged over the quarter. The graph below displays the number of hedge funds with bullish position in ERI over the last five quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were increasing their holdings meaningfully (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Paul Reeder and Edward Shapiro’s PAR Capital Management has the biggest position in Eldorado Resorts Inc (NASDAQ:ERI), worth close to $65.6 million, accounting for 0.9% of its total 13F portfolio. The second largest stake is held by Peter S. Park’s Park West Asset Management, with a $42.7 million position; the fund has 3.9% of its 13F portfolio invested in the stock. Some other professional money managers that hold long positions comprise Bryant Regan’s Lafitte Capital Management, Renaissance Technologies, one of the top hedge funds in the world, and Israel Englander’s Millennium Management. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.

Now that we’ve mentioned the most bullish investors, let’s also take a look at some funds that said goodbye to their entire stakes in the stock during the third quarter. At the top of the heap, Ira Unschuld’s Brant Point Investment Management said goodbye to the largest stake of all the hedgies tracked by Insider Monkey, totaling an estimated $4.1 million in stock. John Fichthorn’s fund, Dialectic Capital Management, also dropped its stock, about $1.1 million worth.

Let’s go over hedge fund activity in other stocks similar to Eldorado Resorts Inc (NASDAQ:ERI). We will take a look at Northstar Realty Europe Corp (NYSE:NRE), New York Mortgage Trust, Inc. (NASDAQ:NYMT), Manitowoc Company, Inc. (NYSE:MTW), and Intra-Cellular Therapies Inc (NASDAQ:ITCI). All of these stocks’ market caps are closest to ERI’s market cap.

As you can see these stocks had an average of 15 hedge funds with long positions and the average amount invested in these stocks was $100 million, versus $207 million in ERI’s case. Manitowoc Company, Inc. (NYSE:MTW) is the most popular stock in this table. On the other hand New York Mortgage Trust, Inc. (NASDAQ:NYMT) is the least popular one with only three funds holding shares. Eldorado Resorts Inc (NASDAQ:ERI) 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. In this regard Manitowoc Company, Inc. (NYSE:MTW) might be a better candidate to consider taking a long position in.

Disclosure: none