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2019 Review: Top Hedge Fund Stocks vs. MGM Resorts International (MGM)

It is already common knowledge that individual investors do not usually have the necessary resources and abilities to properly research an investment opportunity. As a result, most investors pick their illusory “winners” by making a superficial analysis and research that leads to poor performance on aggregate. Since stock returns aren’t usually symmetrically distributed and index returns are more affected by a few outlier stocks (i.e. the FAANG stocks dominating and driving S&P 500 Index’s returns in recent years), more than 50% of the constituents of the Standard and Poor’s 500 Index underperform the benchmark. Hence, if you randomly pick a stock, there is more than 50% chance that you’d fail to beat the market. At the same time, the 20 most favored S&P 500 stocks by the hedge funds monitored by Insider Monkey generated an outperformance of more than 10 percentage points so far in 2019. Of course, hedge funds do make wrong bets on some occasions and these get disproportionately publicized on financial media, but piggybacking their moves can beat the broader market on average. That’s why we are going to go over recent hedge fund activity in MGM Resorts International (NYSE:MGM).

MGM Resorts International (NYSE:MGM) has experienced an increase in hedge fund interest in recent months. Our calculations also showed that MGM isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

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’ 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 Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Keith Meister of Corvex Capital

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind we’re going to review the key hedge fund action encompassing MGM Resorts International (NYSE:MGM).

What have hedge funds been doing with MGM Resorts International (NYSE:MGM)?

Heading into the fourth quarter of 2019, a total of 48 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 37% from the second quarter of 2019. On the other hand, there were a total of 49 hedge funds with a bullish position in MGM a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were boosting their holdings meaningfully (or already accumulated large positions).

Is MGM A Good Stock To Buy?

Among these funds, Corvex Capital held the most valuable stake in MGM Resorts International (NYSE:MGM), which was worth $570 million at the end of the third quarter. On the second spot was Canyon Capital Advisors which amassed $313.8 million worth of shares. Point72 Asset Management, Two Sigma Advisors, and Blue Harbour Group 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 Corvex Capital allocated the biggest weight to MGM Resorts International (NYSE:MGM), around 28.25% of its 13F portfolio. Land & Buildings Investment Management is also relatively very bullish on the stock, dishing out 9.19 percent of its 13F equity portfolio to MGM.

Now, some big names were breaking ground themselves. Point72 Asset Management, managed by Steve Cohen, established the biggest position in MGM Resorts International (NYSE:MGM). Point72 Asset Management had $171.2 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $47.2 million position during the quarter. The other funds with brand new MGM positions are Steve Cohen’s Point72 Asset Management, Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital, and Jeffrey Talpins’s Element Capital Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as MGM Resorts International (NYSE:MGM) but similarly valued. These stocks are ArcelorMittal (NYSE:MT), Quest Diagnostics Incorporated (NYSE:DGX), SK Telecom Co., Ltd. (NYSE:SKM), and Pinterest, Inc. (NYSE:PINS). This group of stocks’ market caps resemble MGM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
MT 14 192839 -1
DGX 33 561377 9
SKM 6 42756 -1
PINS 31 980235 0
Average 21 444302 1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $444 million. That figure was $2194 million in MGM’s case. Quest Diagnostics Incorporated (NYSE:DGX) is the most popular stock in this table. On the other hand SK Telecom Co., Ltd. (NYSE:SKM) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks MGM Resorts International (NYSE:MGM) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on MGM, though not to the same extent, as the stock returned 40.6% during the same period and outperformed the market as well.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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