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Hedge Funds Are Selling Scientific Games Corp (SGMS)

In this article we will check out the progression of hedge fund sentiment towards Scientific Games Corp (NASDAQ:SGMS) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is Scientific Games Corp (NASDAQ:SGMS) a safe investment today? Investors who are in the know are taking a pessimistic view. The number of long hedge fund positions were cut by 11 recently. Our calculations also showed that SGMS 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Mark Cohen Stone House Capital

Mark Cohen of Stone House Capital

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. 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 let’s view the new hedge fund action encompassing Scientific Games Corp (NASDAQ:SGMS).

Hedge fund activity in Scientific Games Corp (NASDAQ:SGMS)

At the end of the first quarter, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -33% from one quarter earlier. On the other hand, there were a total of 28 hedge funds with a bullish position in SGMS a year ago. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were boosting their stakes considerably (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Fine Capital Partners, managed by Debra Fine, holds the most valuable position in Scientific Games Corp (NASDAQ:SGMS). Fine Capital Partners has a $88.4 million position in the stock, comprising 53.8% of its 13F portfolio. On Fine Capital Partners’s heels is Sylebra Capital Management, led by Daniel Patrick Gibson, holding a $83.6 million position; the fund has 3.4% of its 13F portfolio invested in the stock. Remaining professional money managers with similar optimism include Wilmot B. Harkey and Daniel Mack’s Nantahala Capital Management, Mark Cohen’s Stone House Capital and Wilmot B. Harkey and Daniel Mack’s Nantahala Capital Management. In terms of the portfolio weights assigned to each position Stone House Capital allocated the biggest weight to Scientific Games Corp (NASDAQ:SGMS), around 60.98% of its 13F portfolio. Fine Capital Partners is also relatively very bullish on the stock, earmarking 53.84 percent of its 13F equity portfolio to SGMS.

Seeing as Scientific Games Corp (NASDAQ:SGMS) has witnessed falling interest from the smart money, logic holds that there exists a select few hedge funds that elected to cut their positions entirely by the end of the first quarter. At the top of the heap, David Einhorn’s Greenlight Capital said goodbye to the largest position of the 750 funds monitored by Insider Monkey, worth an estimated $30.2 million in stock. Peter S. Park’s fund, Park West Asset Management, also said goodbye to its stock, about $15.9 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 11 funds by the end of the first quarter.

Let’s also examine hedge fund activity in other stocks similar to Scientific Games Corp (NASDAQ:SGMS). These stocks are Trupanion Inc (NASDAQ:TRUP), Covetrus, Inc. (NASDAQ:CVET), TriCo Bancshares (NASDAQ:TCBK), and First Commonwealth Financial Corporation (NYSE:FCF). This group of stocks’ market values are similar to SGMS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TRUP 13 140895 0
CVET 22 114918 2
TCBK 10 30127 -1
FCF 11 22141 -4
Average 14 77020 -0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 14 hedge funds with bullish positions and the average amount invested in these stocks was $77 million. That figure was $226 million in SGMS’s case. Covetrus, Inc. (NASDAQ:CVET) is the most popular stock in this table. On the other hand TriCo Bancshares (NASDAQ:TCBK) is the least popular one with only 10 bullish hedge fund positions. Scientific Games Corp (NASDAQ:SGMS) 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 13.9% in 2020 through June 10th but still beat the market by 14.2 percentage points. Hedge funds were also right about betting on SGMS as the stock returned 72.7% in Q2 (through June 10th) 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.