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Did Hedge Funds Make The Right Call On Red Rock Resorts, Inc. (RRR) ?

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 Red Rock Resorts, Inc. (NASDAQ:RRR) and determine whether the smart money was really smart about this stock.

Is Red Rock Resorts, Inc. (NASDAQ:RRR) a sound stock to buy now? Prominent investors were becoming more confident. The number of long hedge fund positions improved by 7 lately. Our calculations also showed that RRR 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). RRR was in 25 hedge funds’ portfolios at the end of the first quarter of 2020. There were 18 hedge funds in our database with RRR positions at the end of the previous quarter.

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

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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.

Stuart Zimmer Zimmer Partners

Stuart Zimmer of Zimmer Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. 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 if you have any good ideas send us an email. Now let’s review the latest hedge fund action regarding Red Rock Resorts, Inc. (NASDAQ:RRR).

What does smart money think about Red Rock Resorts, Inc. (NASDAQ:RRR)?

Heading into the second quarter of 2020, a total of 25 of the hedge funds tracked by Insider Monkey were long this stock, a change of 39% from the previous quarter. The graph below displays the number of hedge funds with bullish position in RRR over the last 18 quarters. 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 RRR A Good Stock To Buy?

The largest stake in Red Rock Resorts, Inc. (NASDAQ:RRR) was held by Diamond Hill Capital, which reported holding $57.3 million worth of stock at the end of September. It was followed by Long Pond Capital with a $27.5 million position. Other investors bullish on the company included Eminence Capital, PAR Capital Management, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Serengeti Asset Management allocated the biggest weight to Red Rock Resorts, Inc. (NASDAQ:RRR), around 5.78% of its 13F portfolio. 1060 Capital Management is also relatively very bullish on the stock, earmarking 4.29 percent of its 13F equity portfolio to RRR.

As industrywide interest jumped, specific money managers were leading the bulls’ herd. Eminence Capital, managed by Ricky Sandler, created the most valuable position in Red Rock Resorts, Inc. (NASDAQ:RRR). Eminence Capital had $20.1 million invested in the company at the end of the quarter. Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital also made a $2.1 million investment in the stock during the quarter. The other funds with brand new RRR positions are Dmitry Balyasny’s Balyasny Asset Management, Isaac Corre’s Governors Lane, and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Red Rock Resorts, Inc. (NASDAQ:RRR) but similarly valued. We will take a look at Atkore International Group Inc. (NYSE:ATKR), The St. Joe Company (NYSE:JOE), The Liberty Braves Group (NASDAQ:BATRA), and CNX Resources Corporation (NYSE:CNX). This group of stocks’ market values match RRR’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ATKR 13 59916 -10
JOE 11 490794 1
BATRA 11 55016 1
CNX 24 331831 6
Average 14.75 234389 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $234 million. That figure was $159 million in RRR’s case. CNX Resources Corporation (NYSE:CNX) is the most popular stock in this table. On the other hand The St. Joe Company (NYSE:JOE) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Red Rock Resorts, Inc. (NASDAQ:RRR) 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 RRR as the stock returned 27.6% 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.