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Hedge Funds Are Falling Out Of Love With Penn National Gaming, Inc (PENN)

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. In this article we look at what those investors think of Penn National Gaming, Inc (NASDAQ:PENN).

Penn National Gaming, Inc (NASDAQ:PENN) was in 18 hedge funds’ portfolios at the end of the first quarter of 2020. PENN has seen a decrease in support from the world’s most elite money managers of late. There were 27 hedge funds in our database with PENN positions at the end of the previous quarter. Our calculations also showed that PENN 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).

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

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings 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’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.

Ricky Sandler of Eminence Capital

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. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a look at the recent hedge fund action encompassing Penn National Gaming, Inc (NASDAQ:PENN).

How have hedgies been trading Penn National Gaming, Inc (NASDAQ:PENN)?

Heading into the second quarter of 2020, a total of 18 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -33% from the previous quarter. On the other hand, there were a total of 24 hedge funds with a bullish position in PENN a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Penn National Gaming, Inc (NASDAQ:PENN) was held by Eminence Capital, which reported holding $27.5 million worth of stock at the end of September. It was followed by Renaissance Technologies with a $9 million position. Other investors bullish on the company included Citadel Investment Group, Chescapmanager LLC, and Interval Partners. In terms of the portfolio weights assigned to each position Chescapmanager LLC allocated the biggest weight to Penn National Gaming, Inc (NASDAQ:PENN), around 1.77% of its 13F portfolio. Interval Partners is also relatively very bullish on the stock, earmarking 0.48 percent of its 13F equity portfolio to PENN.

Because Penn National Gaming, Inc (NASDAQ:PENN) has faced bearish sentiment from hedge fund managers, it’s easy to see that there exists a select few fund managers that decided to sell off their full holdings heading into Q4. Interestingly, Parag Vora’s HG Vora Capital Management cut the largest investment of all the hedgies tracked by Insider Monkey, totaling close to $51.1 million in stock. Brian Gustavson and Andrew Haley’s fund, 1060 Capital Management, also dumped its stock, about $6.5 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 9 funds heading into Q4.

Let’s go over hedge fund activity in other stocks similar to Penn National Gaming, Inc (NASDAQ:PENN). These stocks are Cabot Corporation (NYSE:CBT), Insight Enterprises, Inc. (NASDAQ:NSIT), Holly Energy Partners, L.P. (NYSE:HEP), and Taylor Morrison Home Corp (NYSE:TMHC). This group of stocks’ market valuations are closest to PENN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CBT 23 58355 -6
NSIT 13 65128 -5
HEP 6 6214 1
TMHC 28 214982 0
Average 17.5 86170 -2.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $86 million. That figure was $73 million in PENN’s case. Taylor Morrison Home Corp (NYSE:TMHC) is the most popular stock in this table. On the other hand Holly Energy Partners, L.P. (NYSE:HEP) is the least popular one with only 6 bullish hedge fund positions. Penn National Gaming, Inc (NASDAQ:PENN) is not the most popular stock in this group but hedge fund interest is still above average. 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 13.4% in 2020 through June 22nd but still beat the market by 15.9 percentage points. Hedge funds were also right about betting on PENN as the stock returned 148.5% in Q2 (through June 22nd) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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