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Did Hedge Funds Make The Right Call On PlayAGS, Inc. (AGS) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards PlayAGS, Inc. (NYSE:AGS) at the end of the first quarter and determine whether the smart money was really smart about this stock.

PlayAGS, Inc. (NYSE:AGS) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 17 hedge funds’ portfolios at the end of the first quarter of 2020. At the end of this article we will also compare AGS to other stocks including CorMedix Inc. (NYSE:CRMD), Titan International Inc (NYSE:TWI), and Asure Software Inc (NASDAQ:ASUR) to get a better sense of its popularity.

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Wil Harkey Nantahala Capital

Wil Harkey of Nantahala Capital Management

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 we’re going to take a glance at the new hedge fund action regarding PlayAGS, Inc. (NYSE:AGS).

How have hedgies been trading PlayAGS, Inc. (NYSE:AGS)?

At the end of the first quarter, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in AGS over the last 18 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Parag Vora’s HG Vora Capital Management has the number one position in PlayAGS, Inc. (NYSE:AGS), worth close to $9.3 million, amounting to 0.9% of its total 13F portfolio. The second largest stake is held by D. E. Shaw of D E Shaw, with a $1.5 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Remaining peers that hold long positions consist of Israel Englander’s Millennium Management, Wilmot B. Harkey and Daniel Mack’s Nantahala Capital Management and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position HG Vora Capital Management allocated the biggest weight to PlayAGS, Inc. (NYSE:AGS), around 0.9% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, dishing out 0.2 percent of its 13F equity portfolio to AGS.

Due to the fact that PlayAGS, Inc. (NYSE:AGS) has faced declining sentiment from the entirety of the hedge funds we track, it’s safe to say that there lies a certain “tier” of fund managers that elected to cut their full holdings by the end of the first quarter. At the top of the heap, Lee Ainslie’s Maverick Capital said goodbye to the biggest position of all the hedgies followed by Insider Monkey, totaling close to $4.9 million in stock, and Cliff Asness’s AQR Capital Management was right behind this move, as the fund dumped about $0.1 million worth. These bearish behaviors are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s check out hedge fund activity in other stocks similar to PlayAGS, Inc. (NYSE:AGS). We will take a look at CorMedix Inc. (NYSE:CRMD), Titan International Inc (NYSE:TWI), Asure Software Inc (NASDAQ:ASUR), and Denbury Resources Inc. (NYSE:DNR). This group of stocks’ market valuations match AGS’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CRMD 3 3558 -3
TWI 7 23029 -4
ASUR 9 17525 0
DNR 8 486 -4
Average 6.75 11150 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.75 hedge funds with bullish positions and the average amount invested in these stocks was $11 million. That figure was $16 million in AGS’s case. Asure Software Inc (NASDAQ:ASUR) is the most popular stock in this table. On the other hand CorMedix Inc. (NYSE:CRMD) is the least popular one with only 3 bullish hedge fund positions. Compared to these stocks PlayAGS, Inc. (NYSE:AGS) 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 gained 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. Unfortunately AGS wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on AGS were disappointed as the stock returned 25.3% since the end of the first quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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