Hedge Funds Never Been Less Bullish On MGM Resorts International (MGM)

The latest 13F reporting period has come and gone, and Insider Monkey have plowed through 823 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 June 30th, when the S&P 500 Index was trading around the 3100 level. Since the end of March, investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned more than 50% since its bottom. In this article you are going to find out whether hedge funds thought MGM Resorts International (NYSE:MGM) was a good investment heading into the third quarter and how the stock traded in comparison to the top hedge fund picks.

Is MGM Resorts International (NYSE:MGM) a superb investment now? Hedge funds were becoming less confident. The number of bullish hedge fund positions were cut by 18 recently. MGM Resorts International (NYSE:MGM) was in 32 hedge funds’ portfolios at the end of June. The all time high for this statistics is 67. Our calculations also showed that MGM 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.

Keith Meister of Corvex Capital

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 we’re going to analyze the fresh hedge fund action regarding MGM Resorts International (NYSE:MGM).

What have hedge funds been doing with MGM Resorts International (NYSE:MGM)?

At the end of the second quarter, a total of 32 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -36% from the first quarter of 2020. By comparison, 35 hedge funds held shares or bullish call options in MGM a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Corvex Capital held the most valuable stake in MGM Resorts International (NYSE:MGM), which was worth $378.6 million at the end of the third quarter. On the second spot was SRS Investment Management which amassed $224.7 million worth of shares. Arrowstreet Capital, Blue Harbour Group, 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 Corvex Capital allocated the biggest weight to MGM Resorts International (NYSE:MGM), around 23.03% of its 13F portfolio. Blue Harbour Group is also relatively very bullish on the stock, dishing out 20.1 percent of its 13F equity portfolio to MGM.

Because MGM Resorts International (NYSE:MGM) has witnessed bearish sentiment from the entirety of the hedge funds we track, it’s easy to see that there lies a certain “tier” of fund managers that decided to sell off their entire stakes heading into Q3. Intriguingly, Ricky Sandler’s Eminence Capital cut the biggest position of the 750 funds tracked by Insider Monkey, comprising an estimated $74.5 million in stock. Joshua Friedman and Mitchell Julis’s fund, Canyon Capital Advisors, also sold off its stock, about $60.5 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 18 funds heading into Q3.

Let’s now take a look at hedge fund activity in other stocks similar to MGM Resorts International (NYSE:MGM). These stocks are Carnival Corporation & plc (NYSE:CUK), Pinnacle West Capital Corporation (NYSE:PNW), Everest Re Group Ltd (NYSE:RE), Phillips 66 Partners LP (NYSE:PSXP), Ionis Pharmaceuticals, Inc. (NASDAQ:IONS), Albemarle Corporation (NYSE:ALB), and Immunomedics, Inc. (NASDAQ:IMMU). This group of stocks’ market caps are closest to MGM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CUK 14 72014 5
PNW 25 753260 0
RE 29 585163 2
PSXP 6 29854 1
IONS 23 387779 1
ALB 25 66986 1
IMMU 48 2295437 21
Average 24.3 598642 4.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.3 hedge funds with bullish positions and the average amount invested in these stocks was $599 million. That figure was $1007 million in MGM’s case. Immunomedics, Inc. (NASDAQ:IMMU) is the most popular stock in this table. On the other hand Phillips 66 Partners LP (NYSE:PSXP) is the least popular one with only 6 bullish hedge fund positions. MGM Resorts International (NYSE:MGM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for MGM is 32.3. 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 gained 23.8% in 2020 through September 14th and still beat the market by 17.6 percentage points. Hedge funds were also right about betting on MGM as the stock returned 37.3% during Q3 (through September 14th) 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.