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Hedge Funds Are Betting On Melco Resorts & Entertainment Limited (MLCO)

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 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 June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought Melco Resorts & Entertainment Limited (NASDAQ:MLCO) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

Melco Resorts & Entertainment Limited (NASDAQ:MLCO) has seen an increase in hedge fund sentiment of late. Melco Resorts & Entertainment Limited (NASDAQ:MLCO) was in 32 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 35. There were 28 hedge funds in our database with MLCO holdings at the end of March. Our calculations also showed that MLCO isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

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 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 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 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.

CITADEL INVESTMENT GROUP

Ken Griffin of Citadel Investment Group

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world 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. Now we’re going to take a look at the key hedge fund action encompassing Melco Resorts & Entertainment Limited (NASDAQ:MLCO).

Hedge fund activity in Melco Resorts & Entertainment Limited (NASDAQ:MLCO)

At Q2’s end, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 14% from the first quarter of 2020. By comparison, 22 hedge funds held shares or bullish call options in MLCO 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.

Is MLCO A Good Stock To Buy?

More specifically, Broad Peak Investment Holdings was the largest shareholder of Melco Resorts & Entertainment Limited (NASDAQ:MLCO), with a stake worth $79.5 million reported as of the end of September. Trailing Broad Peak Investment Holdings was Platinum Asset Management, which amassed a stake valued at $68.1 million. Tremblant Capital, Citadel Investment Group, and Arrowstreet 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 Brightlight Capital allocated the biggest weight to Melco Resorts & Entertainment Limited (NASDAQ:MLCO), around 10.67% of its 13F portfolio. Lomas Capital Management is also relatively very bullish on the stock, dishing out 7.58 percent of its 13F equity portfolio to MLCO.

Consequently, key money managers were leading the bulls’ herd. King Street Capital, managed by Brian J. Higgins, assembled the biggest position in Melco Resorts & Entertainment Limited (NASDAQ:MLCO). King Street Capital had $35.2 million invested in the company at the end of the quarter. Louis Bacon’s Moore Global Investments also initiated a $16.6 million position during the quarter. The following funds were also among the new MLCO investors: James Dinan’s York Capital Management, Steve Cohen’s Point72 Asset Management, and Benjamin A. Smith’s Laurion Capital Management.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Melco Resorts & Entertainment Limited (NASDAQ:MLCO) but similarly valued. These stocks are Ally Financial Inc (NYSE:ALLY), Credit Acceptance Corp. (NASDAQ:CACC), Livongo Health, Inc. (NASDAQ:LVGO), Formula One Group (NASDAQ:FWONK), WestRock Company (NYSE:WRK), BorgWarner Inc. (NYSE:BWA), and Vail Resorts, Inc. (NYSE:MTN). This group of stocks’ market caps are similar to MLCO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ALLY 54 1635686 9
CACC 23 985846 1
LVGO 36 338665 19
FWONK 49 1402496 12
WRK 32 461872 6
BWA 35 802792 5
MTN 37 753210 0
Average 38 911510 7.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 38 hedge funds with bullish positions and the average amount invested in these stocks was $912 million. That figure was $610 million in MLCO’s case. Ally Financial Inc (NYSE:ALLY) is the most popular stock in this table. On the other hand Credit Acceptance Corp. (NASDAQ:CACC) is the least popular one with only 23 bullish hedge fund positions. Melco Resorts & Entertainment Limited (NASDAQ:MLCO) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for MLCO is 50.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 23.8% in 2020 through September 14th and still beat the market by 17.6 percentage points. A small number of hedge funds were also right about betting on MLCO as the stock returned 25% since the end of June (through September 14th) and outperformed the market by an even larger margin.

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