Is Red Rock Resorts, Inc. (NASDAQ:RRR) a good investment right now? We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Red Rock Resorts, Inc. (NASDAQ:RRR) shareholders have witnessed an increase in hedge fund sentiment of late. Our calculations also showed that RRR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings).
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 Russell 2000 ETFs by 40 percentage points since May 2014 (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.
Paul Reeder of PAR Capital Management
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. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a look at the recent hedge fund action regarding Red Rock Resorts, Inc. (NASDAQ:RRR).
How are hedge funds trading Red Rock Resorts, Inc. (NASDAQ:RRR)?
At Q3’s end, a total of 17 of the hedge funds tracked by Insider Monkey were long this stock, a change of 6% from the previous quarter. On the other hand, there were a total of 21 hedge funds with a bullish position in RRR a year ago. With hedgies’ sentiment swirling, there exists an “upper tier” of key hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).
Among these funds, Diamond Hill Capital held the most valuable stake in Red Rock Resorts, Inc. (NASDAQ:RRR), which was worth $147.9 million at the end of the third quarter. On the second spot was Long Pond Capital which amassed $61.2 million worth of shares. PAR Capital Management, Citadel Investment Group, and Serengeti Asset Management 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 Serengeti Asset Management allocated the biggest weight to Red Rock Resorts, Inc. (NASDAQ:RRR), around 9.87% of its 13F portfolio. Long Pond Capital is also relatively very bullish on the stock, setting aside 1.6 percent of its 13F equity portfolio to RRR.
Consequently, specific money managers have jumped into Red Rock Resorts, Inc. (NASDAQ:RRR) headfirst. Zimmer Partners, managed by Stuart J. Zimmer, established the biggest position in Red Rock Resorts, Inc. (NASDAQ:RRR). Zimmer Partners had $16.7 million invested in the company at the end of the quarter. Steve Cohen’s Point72 Asset Management also made a $7 million investment in the stock during the quarter. The other funds with new positions in the stock are Sara Nainzadeh’s Centenus Global Management, Minhua Zhang’s Weld Capital Management, and Renee Yao’s Neo Ivy Capital.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Red Rock Resorts, Inc. (NASDAQ:RRR) but similarly valued. We will take a look at Welbilt, Inc. (NYSE:WBT), Builders FirstSource, Inc. (NASDAQ:BLDR), AU Optronics Corp. (NYSE:AUO), and H.B. Fuller Company (NYSE:FUL). This group of stocks’ market values resemble RRR’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| WBT | 26 | 792934 | 1 |
| BLDR | 36 | 499407 | 1 |
| AUO | 8 | 20810 | 1 |
| FUL | 14 | 146701 | 2 |
| Average | 21 | 364963 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $365 million. That figure was $354 million in RRR’s case. Builders FirstSource, Inc. (NASDAQ:BLDR) is the most popular stock in this table. On the other hand AU Optronics Corp. (NYSE:AUO) is the least popular one with only 8 bullish hedge fund positions. Red Rock Resorts, Inc. (NASDAQ:RRR) is not the least popular stock in this group but hedge fund interest is still below average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. A small number of hedge funds were also right about betting on RRR as the stock returned 15.2% during the first two months of Q4 and outperformed the market by an even larger margin.
Disclosure: None. This article was originally published at Insider Monkey.
