Hedge funds and other investment firms that we track manage billions of dollars of their wealthy clients’ money, and needless to say, they are painstakingly thorough when analyzing where to invest this money, as their own wealth also depends on it. Regardless of the various methods used by elite investors like David Tepper and David Abrams, the resources they expend are second-to-none. This is especially valuable when it comes to small-cap stocks, which is where they generate their strongest outperformance, as their resources give them a huge edge when it comes to studying these stocks compared to the average investor, which is why we intently follow their activity in the small-cap space. Nevertheless, it is also possible to identify cheap large cap stocks by following the footsteps of best performing hedge funds.
Is Eldorado Resorts Inc (NYSE:ERI) a healthy stock for your portfolio? The smart money is taking a bullish view. The number of bullish hedge fund bets rose by 6 recently. Our calculations also showed that ERI isn’t among the 30 most popular stocks among hedge funds (view the video below).
Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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.
Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn’t rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We’re going to review the latest hedge fund action surrounding Eldorado Resorts Inc (NYSE:ERI).
What does smart money think about Eldorado Resorts Inc (NYSE:ERI)?
At Q2’s end, a total of 37 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 19% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ERI over the last 16 quarters. With hedge funds’ sentiment swirling, there exists a select group of key hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
Among these funds, HG Vora Capital Management held the most valuable stake in Eldorado Resorts Inc (NYSE:ERI), which was worth $207.3 million at the end of the second quarter. On the second spot was Park West Asset Management which amassed $145.3 million worth of shares. Moreover, Silver Point Capital, Lafitte Capital Management, and Highline Capital Management were also bullish on Eldorado Resorts Inc (NYSE:ERI), allocating a large percentage of their portfolios to this stock.
As one would reasonably expect, some big names have jumped into Eldorado Resorts Inc (NYSE:ERI) headfirst. HG Vora Capital Management, managed by Parag Vora, created the most valuable position in Eldorado Resorts Inc (NASDAQ:ERI). HG Vora Capital Management had $207.3 million invested in the company at the end of the quarter. Edward A. Mule’s Silver Point Capital also initiated a $85.9 million position during the quarter. The following funds were also among the new ERI investors: Matthew Halbower’s Pentwater Capital Management, Himanshu Gulati’s Antara Capital, and Joshua Friedman and Mitchell Julis’s Canyon Capital Advisors.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Eldorado Resorts Inc (NYSE:ERI) but similarly valued. These stocks are United Bankshares, Inc. (NASDAQ:UBSI), NCR Corporation (NYSE:NCR), Perspecta Inc. (NYSE:PRSP), and FirstService Corporation (NASDAQ:FSV). All of these stocks’ market caps are closest to ERI’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 22 hedge funds with bullish positions and the average amount invested in these stocks was $302 million. That figure was $1022 million in ERI’s case. Perspecta Inc. (NYSE:PRSP) is the most popular stock in this table. On the other hand FirstService Corporation (NASDAQ:FSV) is the least popular one with only 10 bullish hedge fund positions. Eldorado Resorts Inc (NYSE:ERI) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately ERI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ERI were disappointed as the stock returned -13.5% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.