Hedge Fund Consensus Stocks vs. Eldorado Resorts Inc (ERI) In 2019

Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before last year’s Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first half of 2019, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first half still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to Eldorado Resorts Inc (NASDAQ:ERI) changed recently.

Is Eldorado Resorts Inc (NASDAQ:ERI) a buy, sell, or hold? The best stock pickers are becoming hopeful. The number of long hedge fund bets inched up by 7 recently. Our calculations also showed that ERI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings). ERI was in 44 hedge funds’ portfolios at the end of September. There were 37 hedge funds in our database with ERI holdings at the end of the previous quarter.

In today’s marketplace there are several indicators market participants can use to size up publicly traded companies. A pair of the most innovative indicators are hedge fund and insider trading sentiment. Our experts have shown that, historically, those who follow the best picks of the elite money managers can outpace their index-focused peers by a solid amount (see the details here).

Parag Vora - HG Vora Capital

Parag Vora of HG Vora Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Discover is offering this insane cashback card, so we look into shorting the stock. 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 even check out this option genius’ weekly trade ideas. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock already gained 20 percent. With all of this in mind let’s review the key hedge fund action encompassing Eldorado Resorts Inc (NASDAQ:ERI).

How have hedgies been trading Eldorado Resorts Inc (NASDAQ:ERI)?

Heading into the fourth quarter of 2019, a total of 44 of the hedge funds tracked by Insider Monkey were long this stock, a change of 19% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards ERI over the last 17 quarters. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

More specifically, HG Vora Capital Management was the largest shareholder of Eldorado Resorts Inc (NASDAQ:ERI), with a stake worth $229.3 million reported as of the end of September. Trailing HG Vora Capital Management was Canyon Capital Advisors, which amassed a stake valued at $204.5 million. Park West Asset Management, Silver Point Capital, and Lafitte Capital 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 Lafitte Capital Management allocated the biggest weight to Eldorado Resorts Inc (NASDAQ:ERI), around 35.86% of its 13F portfolio. HG Vora Capital Management is also relatively very bullish on the stock, designating 21.96 percent of its 13F equity portfolio to ERI.

Now, key money managers were leading the bulls’ herd. Park West Asset Management, managed by Peter S. Park, initiated the largest call position in Eldorado Resorts Inc (NASDAQ:ERI). Park West Asset Management had $33.1 million invested in the company at the end of the quarter. Ken Grossman and Glen Schneider’s SG Capital Management also made a $28.4 million investment in the stock during the quarter. The following funds were also among the new ERI investors: Jonathan Litt’s Land & Buildings Investment Management, Mark Coe’s Intrinsic Edge Capital, and Daniel Lascano’s Lomas Capital Management.

Let’s now take a look at hedge fund activity in other stocks similar to Eldorado Resorts Inc (NASDAQ:ERI). These stocks are Cronos Group Inc. (NASDAQ:CRON), CenterState Bank Corporation (NASDAQ:CSFL), Mercury General Corporation (NYSE:MCY), and Sunstone Hotel Investors Inc (NYSE:SHO). This group of stocks’ market valuations match ERI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CRON 11 93920 3
CSFL 12 83804 -3
MCY 20 200510 4
SHO 21 221672 0
Average 16 149977 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $150 million. That figure was $1020 million in ERI’s case. Sunstone Hotel Investors Inc (NYSE:SHO) is the most popular stock in this table. On the other hand Cronos Group Inc. (NASDAQ:CRON) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Eldorado Resorts Inc (NASDAQ:ERI) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.1% in 2019 through December 23rd and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Hedge funds were also right about betting on ERI as the stock returned 63.2% so far in 2019 (through 12/23) 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.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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