How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding SeaWorld Entertainment Inc (NYSE:SEAS).
Is SeaWorld Entertainment Inc (NYSE:SEAS) a buy right now? The best stock pickers were taking an optimistic view. The number of long hedge fund positions went up by 2 recently. SeaWorld Entertainment Inc (NYSE:SEAS) was in 41 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic was previously 39. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that SEAS isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).
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 S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.
Gabriel Plotkin of Melvin Capital Management
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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. You can subscribe to our free daily newsletter on our homepage. Now let’s review the new hedge fund action regarding SeaWorld Entertainment Inc (NYSE:SEAS).
Do Hedge Funds Think SEAS Is A Good Stock To Buy Now?
At Q2’s end, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from the previous quarter. The graph below displays the number of hedge funds with bullish position in SEAS over the last 24 quarters. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
Among these funds, Hill Path Capital held the most valuable stake in SeaWorld Entertainment Inc (NYSE:SEAS), which was worth $1358.6 million at the end of the second quarter. On the second spot was Melvin Capital Management which amassed $212.2 million worth of shares. Candlestick Capital Management, Two Sigma Advisors, and Citadel Investment Group 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 Hill Path Capital allocated the biggest weight to SeaWorld Entertainment Inc (NYSE:SEAS), around 77.87% of its 13F portfolio. Sonic Capital is also relatively very bullish on the stock, earmarking 4.55 percent of its 13F equity portfolio to SEAS.
As aggregate interest increased, key hedge funds have been driving this bullishness. Melvin Capital Management, managed by Gabriel Plotkin, created the most valuable call position in SeaWorld Entertainment Inc (NYSE:SEAS). Melvin Capital Management had $30 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also initiated a $17.4 million position during the quarter. The other funds with new positions in the stock are Brad Stephens’s Six Columns Capital, Curtis Schenker and Craig Effron’s Scoggin, and Steve Cohen’s Point72 Asset Management.
Let’s now take a look at hedge fund activity in other stocks similar to SeaWorld Entertainment Inc (NYSE:SEAS). We will take a look at ONE Gas Inc (NYSE:OGS), WNS (Holdings) Limited (NYSE:WNS), Qualys Inc (NASDAQ:QLYS), EPR Properties (NYSE:EPR), F.N.B. Corp (NYSE:FNB), Alkermes Plc (NASDAQ:ALKS), and Option Care Health, Inc. (NASDAQ:OPCH). This group of stocks’ market values are similar to SEAS’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| OGS | 13 | 31848 | 0 |
| WNS | 20 | 294371 | -1 |
| QLYS | 20 | 214955 | 8 |
| EPR | 20 | 231012 | 5 |
| FNB | 16 | 55892 | 0 |
| ALKS | 36 | 897660 | 5 |
| OPCH | 31 | 342676 | 0 |
| Average | 22.3 | 295488 | 2.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.3 hedge funds with bullish positions and the average amount invested in these stocks was $295 million. That figure was $1948 million in SEAS’s case. Alkermes Plc (NASDAQ:ALKS) is the most popular stock in this table. On the other hand ONE Gas Inc (NYSE:OGS) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks SeaWorld Entertainment Inc (NYSE:SEAS) is more popular among hedge funds. Our overall hedge fund sentiment score for SEAS is 87. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks returned 21.8% in 2021 through October 11th but still managed to beat the market by 4.4 percentage points. Hedge funds were also right about betting on SEAS as the stock returned 15% since the end of June (through 10/11) 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.
