Did Hedge Funds Drop The Ball On Penn National Gaming, Inc (PENN)?

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. Now, we are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article you are going to find out whether hedge funds thoughtPenn National Gaming, Inc (NASDAQ:PENN) was a good investment heading into the second quarter and how the stock traded in comparison to the top hedge fund picks.

Penn National Gaming, Inc (NASDAQ:PENN) shareholders have witnessed a decrease in hedge fund interest lately. PENN was in 18 hedge funds’ portfolios at the end of March. There were 27 hedge funds in our database with PENN positions at the end of the previous quarter. Our calculations also showed that PENN isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

In the 21st century investor’s toolkit there are a multitude of methods stock market investors put to use to appraise stocks. Two of the most useful methods are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the best picks of the top investment managers can beat the market by a very impressive amount (see the details here).

Ricky Sandler of Eminence Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. 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. With all of this in mind let’s take a look at the recent hedge fund action encompassing Penn National Gaming, Inc (NASDAQ:PENN).

What does smart money think about Penn National Gaming, Inc (NASDAQ:PENN)?

At the end of the first quarter, a total of 18 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -33% from the fourth quarter of 2019. By comparison, 24 hedge funds held shares or bullish call options in PENN 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.

The largest stake in Penn National Gaming, Inc (NASDAQ:PENN) was held by Eminence Capital, which reported holding $27.5 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $9 million position. Other investors bullish on the company included Citadel Investment Group, Chescapmanager LLC, and Interval Partners. In terms of the portfolio weights assigned to each position Chescapmanager LLC allocated the biggest weight to Penn National Gaming, Inc (NASDAQ:PENN), around 1.77% of its 13F portfolio. Interval Partners is also relatively very bullish on the stock, dishing out 0.48 percent of its 13F equity portfolio to PENN.

Due to the fact that Penn National Gaming, Inc (NASDAQ:PENN) has witnessed a decline in interest from the aggregate hedge fund industry, it’s safe to say that there was a specific group of funds that decided to sell off their entire stakes by the end of the first quarter. It’s worth mentioning that Parag Vora’s HG Vora Capital Management said goodbye to the biggest position of all the hedgies tracked by Insider Monkey, worth about $51.1 million in stock, and Brian Gustavson and Andrew Haley’s 1060 Capital Management was right behind this move, as the fund dumped about $6.5 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 9 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Penn National Gaming, Inc (NASDAQ:PENN) but similarly valued. We will take a look at Cabot Corporation (NYSE:CBT), Insight Enterprises, Inc. (NASDAQ:NSIT), Holly Energy Partners, L.P. (NYSE:HEP), and Taylor Morrison Home Corp (NYSE:TMHC). This group of stocks’ market caps resemble PENN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CBT 23 58355 -6
NSIT 13 65128 -5
HEP 6 6214 1
TMHC 28 214982 0
Average 17.5 86170 -2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $86 million. That figure was $73 million in PENN’s case. Taylor Morrison Home Corp (NYSE:TMHC) is the most popular stock in this table. On the other hand Holly Energy Partners, L.P. (NYSE:HEP) is the least popular one with only 6 bullish hedge fund positions. Penn National Gaming, Inc (NASDAQ:PENN) is not the most popular stock in this group but hedge fund interest is still above average. 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 gained 18.6% in 2020 through July 27th but still beat the market by 17.1 percentage points. Hedge funds were also right about betting on PENN as the stock returned 159.8% since Q1 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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