Hedge Funds Keep Betting On Red Rock Resorts, Inc. (RRR)

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Red Rock Resorts, Inc. (NASDAQ:RRR) and determine whether hedge funds skillfully traded this stock.

Red Rock Resorts, Inc. (NASDAQ:RRR) investors should be aware of an increase in enthusiasm from smart money recently. Red Rock Resorts, Inc. (NASDAQ:RRR) was in 30 hedge funds’ portfolios at the end of the second quarter of 2020. The all time high for this statistics is 25. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 25 hedge funds in our database with RRR positions at the end of the first quarter. Our calculations also showed that RRR 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.

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 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Paul Reeder PAR Capital Management

Paul Reeder of PAR Capital Management

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. Keeping this in mind let’s take a look at the latest hedge fund action surrounding Red Rock Resorts, Inc. (NASDAQ:RRR).

How have hedgies been trading Red Rock Resorts, Inc. (NASDAQ:RRR)?

At the end of the second quarter, a total of 30 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 20% from the previous quarter. On the other hand, there were a total of 16 hedge funds with a bullish position in RRR a year ago. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Diamond Hill Capital, managed by Ric Dillon, holds the biggest position in Red Rock Resorts, Inc. (NASDAQ:RRR). Diamond Hill Capital has a $73.2 million position in the stock, comprising 0.4% of its 13F portfolio. Coming in second is Ricky Sandler of Eminence Capital, with a $56.6 million position; 0.6% of its 13F portfolio is allocated to the stock. Other hedge funds and institutional investors with similar optimism comprise Paul Reeder and Edward Shapiro’s PAR Capital Management, Israel Englander’s Millennium Management and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Serengeti Asset Management allocated the biggest weight to Red Rock Resorts, Inc. (NASDAQ:RRR), around 2.49% of its 13F portfolio. Solel Partners is also relatively very bullish on the stock, dishing out 0.92 percent of its 13F equity portfolio to RRR.

Now, key hedge funds were leading the bulls’ herd. Samlyn Capital, managed by Robert Pohly, initiated the most outsized position in Red Rock Resorts, Inc. (NASDAQ:RRR). Samlyn Capital had $11.9 million invested in the company at the end of the quarter. Renaissance Technologies also made a $8.3 million investment in the stock during the quarter. The other funds with brand new RRR positions are Himanshu Gulati’s Antara Capital, Joel Greenblatt’s Gotham Asset Management, and Jay Genzer’s Thames Capital Management.

Let’s check out hedge fund activity in other stocks similar to Red Rock Resorts, Inc. (NASDAQ:RRR). These stocks are American Woodmark Corporation (NASDAQ:AMWD), CorVel Corporation (NASDAQ:CRVL), Azul S.A. (NYSE:AZUL), The Macerich Company (NYSE:MAC), Gentherm Inc (NASDAQ:THRM), The Bank of N.T. Butterfield & Son Limited (NYSE:NTB), and Coherus Biosciences Inc (NASDAQ:CHRS). This group of stocks’ market values are similar to RRR’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AMWD 16 38103 5
CRVL 15 109671 3
AZUL 13 53616 5
MAC 20 75996 -1
THRM 13 68323 2
NTB 15 64066 -3
CHRS 26 192516 -9
Average 16.9 86042 0.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.9 hedge funds with bullish positions and the average amount invested in these stocks was $86 million. That figure was $244 million in RRR’s case. Coherus Biosciences Inc (NASDAQ:CHRS) is the most popular stock in this table. On the other hand Azul S.A. (NYSE:AZUL) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks Red Rock Resorts, Inc. (NASDAQ:RRR) is more popular among hedge funds. Our overall hedge fund sentiment score for RRR is 90. 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 returned 23.8% in 2020 through September 14th but still managed to beat the market by 17.6 percentage points. Hedge funds were also right about betting on RRR as the stock returned 64.1% since the end of June 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.