Is Reading International, Inc. (NASDAQ:RDI) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Reading International, Inc. (NASDAQ:RDI) was in 7 hedge funds’ portfolios at the end of September. RDI has experienced an increase in hedge fund sentiment in recent months. There were 6 hedge funds in our database with RDI positions at the end of the previous quarter. Our calculations also showed that RDI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Donald Yacktman of Yacktman Asset Management
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a peek at the latest hedge fund action encompassing Reading International, Inc. (NASDAQ:RDI).
What have hedge funds been doing with Reading International, Inc. (NASDAQ:RDI)?
At the end of the third quarter, a total of 7 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in RDI over the last 17 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Reading International, Inc. (NASDAQ:RDI), with a stake worth $9.7 million reported as of the end of September. Trailing Renaissance Technologies was GAMCO Investors, which amassed a stake valued at $3.5 million. Yacktman Asset Management, Winton Capital Management, and Cove Street 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 Elkhorn Partners allocated the biggest weight to Reading International, Inc. (NASDAQ:RDI), around 0.15% of its 13F portfolio. Cove Street Capital is also relatively very bullish on the stock, designating 0.08 percent of its 13F equity portfolio to RDI.
Consequently, some big names were leading the bulls’ herd. Winton Capital Management, managed by David Harding, established the most valuable position in Reading International, Inc. (NASDAQ:RDI). Winton Capital Management had $0.7 million invested in the company at the end of the quarter.
Let’s check out hedge fund activity in other stocks similar to Reading International, Inc. (NASDAQ:RDI). We will take a look at Forty Seven, Inc. (NASDAQ:FTSV), The Lovesac Company (NASDAQ:LOVE), Enlivex Therapeutics Ltd. (NASDAQ:ENLV), and General Finance Corporation (NASDAQ:GFN). This group of stocks’ market valuations match RDI’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FTSV | 9 | 34213 | 2 |
| LOVE | 12 | 35995 | 2 |
| ENLV | 1 | 635 | 0 |
| GFN | 5 | 9584 | 0 |
| Average | 6.75 | 20107 | 1 |
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 $20 million. That figure was $18 million in RDI’s case. The Lovesac Company (NASDAQ:LOVE) is the most popular stock in this table. On the other hand Enlivex Therapeutics Ltd. (NASDAQ:ENLV) is the least popular one with only 1 bullish hedge fund positions. Reading International, Inc. (NASDAQ:RDI) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Unfortunately RDI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on RDI were disappointed as the stock returned -10.3% during the fourth quarter (through the end of November) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.
