Did Hedge Funds Get Penn National Gaming, Inc (PENN) Right?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Penn National Gaming, Inc (NASDAQ:PENN) and determine whether hedge funds had an edge regarding this stock.

Penn National Gaming, Inc (NASDAQ:PENN) was in 38 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 45. PENN investors should pay attention to a decrease in enthusiasm from smart money recently. There were 40 hedge funds in our database with PENN holdings at the end of June. Our calculations also showed that PENN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

Alex Sacerdote of Whale Rock Capital Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now we’re going to take a look at the key hedge fund action encompassing Penn National Gaming, Inc (NASDAQ:PENN).

Do Hedge Funds Think PENN Is A Good Stock To Buy Now?

At the end of the third quarter, a total of 38 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -5% from the previous quarter. On the other hand, there were a total of 45 hedge funds with a bullish position in PENN a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is PENN A Good Stock To Buy?

More specifically, Atreides Management was the largest shareholder of Penn National Gaming, Inc (NASDAQ:PENN), with a stake worth $350.5 million reported as of the end of September. Trailing Atreides Management was Whale Rock Capital Management, which amassed a stake valued at $148.1 million. Citadel Investment Group, Jericho Capital Asset Management, and Millennium Management 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 Isomer Partners allocated the biggest weight to Penn National Gaming, Inc (NASDAQ:PENN), around 11.8% of its 13F portfolio. Atreides Management is also relatively very bullish on the stock, setting aside 8.28 percent of its 13F equity portfolio to PENN.

Seeing as Penn National Gaming, Inc (NASDAQ:PENN) has experienced bearish sentiment from the smart money, we can see that there lies a certain “tier” of fund managers that slashed their positions entirely by the end of the third quarter. At the top of the heap, Parag Vora’s HG Vora Capital Management cut the biggest stake of the 750 funds tracked by Insider Monkey, valued at an estimated $191.2 million in stock, and Kenneth Tropin’s Graham Capital Management was right behind this move, as the fund cut about $75.3 million worth. These bearish behaviors are interesting, as total hedge fund interest dropped by 2 funds by the end of the third quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Penn National Gaming, Inc (NASDAQ:PENN) but similarly valued. These stocks are Western Alliance Bancorporation (NYSE:WAL), Essential Utilities Inc (NYSE:WTRG), Playtika Holding Corp. (NASDAQ:PLTK), Fair Isaac Corporation (NYSE:FICO), Black Knight, Inc. (NYSE:BKI), Snap-on Incorporated (NYSE:SNA), and Targa Resources Corp (NYSE:TRGP). This group of stocks’ market valuations are closest to PENN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WAL 29 291818 1
WTRG 19 435811 6
PLTK 25 520101 -1
FICO 37 1004312 9
BKI 38 775299 5
SNA 29 551227 -2
TRGP 26 567252 0
Average 29 592260 2.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $592 million. That figure was $1081 million in PENN’s case. Black Knight, Inc. (NYSE:BKI) is the most popular stock in this table. On the other hand Essential Utilities Inc (NYSE:WTRG) is the least popular one with only 19 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 overall hedge fund sentiment score for PENN is 78.3. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, PENN wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on PENN were disappointed as the stock returned -37.1% since the end of September (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.

Follow Penn Entertainment Inc. (NASDAQ:PENN)

Suggested Articles:

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