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Did Hedge Funds Make The Right Call On Eldorado Resorts Inc (ERI) ?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at 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. 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 we look at how hedge funds traded Eldorado Resorts Inc (NASDAQ:ERI) and determine whether the smart money was really smart about this stock.

Eldorado Resorts Inc (NASDAQ:ERI) shareholders have witnessed a decrease in enthusiasm from smart money lately. ERI was in 39 hedge funds’ portfolios at the end of the first quarter of 2020. There were 49 hedge funds in our database with ERI holdings at the end of the previous quarter. Our calculations also showed that ERI 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.

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 58 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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Parag Vora - HG Vora Capital

Parag Vora of HG Vora Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. With all of this in mind we’re going to go over the latest hedge fund action encompassing Eldorado Resorts Inc (NASDAQ:ERI).

Hedge fund activity in Eldorado Resorts Inc (NASDAQ:ERI)

At the end of the first quarter, a total of 39 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -20% from the previous quarter. By comparison, 31 hedge funds held shares or bullish call options in ERI 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.

Among these funds, Canyon Capital Advisors held the most valuable stake in Eldorado Resorts Inc (NASDAQ:ERI), which was worth $75.5 million at the end of the third quarter. On the second spot was HG Vora Capital Management which amassed $43.2 million worth of shares. Park West Asset Management, Bridger Management, and Silver Point 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 Lafitte Capital Management allocated the biggest weight to Eldorado Resorts Inc (NASDAQ:ERI), around 11.05% of its 13F portfolio. Shelter Haven Capital Management is also relatively very bullish on the stock, earmarking 4.31 percent of its 13F equity portfolio to ERI.

Since Eldorado Resorts Inc (NASDAQ:ERI) has experienced declining sentiment from the aggregate hedge fund industry, logic holds that there were a few hedge funds that elected to cut their full holdings heading into Q4. It’s worth mentioning that Peter S. Park’s Park West Asset Management dumped the largest stake of the “upper crust” of funds monitored by Insider Monkey, worth close to $61.8 million in stock, and Jacob Doft’s Highline Capital Management was right behind this move, as the fund said goodbye to about $40.4 million worth. These moves are interesting, as total hedge fund interest was cut by 10 funds heading into Q4.

Let’s check out hedge fund activity in other stocks similar to Eldorado Resorts Inc (NASDAQ:ERI). These stocks are Enable Midstream Partners LP (NYSE:ENBL), Texas Capital Bancshares Inc (NASDAQ:TCBI), Scorpio Tankers Inc. (NYSE:STNG), and Flagstar Bancorp Inc (NYSE:FBC). This group of stocks’ market caps resemble ERI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ENBL 6 6540 2
TCBI 19 52354 -7
STNG 25 87700 -8
FBC 15 66195 -5
Average 16.25 53197 -4.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.25 hedge funds with bullish positions and the average amount invested in these stocks was $53 million. That figure was $279 million in ERI’s case. Scorpio Tankers Inc. (NYSE:STNG) is the most popular stock in this table. On the other hand Enable Midstream Partners LP (NYSE:ENBL) is the least popular one with only 6 bullish hedge fund positions. Compared to these stocks Eldorado Resorts Inc (NASDAQ:ERI) is more popular among hedge funds. 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on ERI as the stock returned 178.2% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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