Is Monarch Casino & Resort, Inc. (NASDAQ:MCRI) 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, 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.
Hedge fund interest in Monarch Casino & Resort, Inc. (NASDAQ:MCRI) shares was flat at the end of last quarter. This is usually a negative indicator. At the end of this article we will also compare MCRI to other stocks including Banco Latinoamericano de Comercio Exterior, S.A. (NYSE:BLX), ArcBest Corp (NASDAQ:ARCB), and Armada Hoffler Properties Inc (NYSE:AHH) to get a better sense of its popularity.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to go over the new hedge fund action regarding Monarch Casino & Resort, Inc. (NASDAQ:MCRI).
What have hedge funds been doing with Monarch Casino & Resort, Inc. (NASDAQ:MCRI)?
At the end of the first quarter, a total of 10 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in MCRI over the last 15 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Park West Asset Management, managed by Peter S. Park, holds the most valuable position in Monarch Casino & Resort, Inc. (NASDAQ:MCRI). Park West Asset Management has a $65 million position in the stock, comprising 2.9% of its 13F portfolio. Sitting at the No. 2 spot is Bryant Regan of Lafitte Capital Management, with a $44.3 million position; 22.7% of its 13F portfolio is allocated to the stock. Some other professional money managers with similar optimism contain Jim Simons’s Renaissance Technologies, Richard Driehaus’s Driehaus Capital and Brandon Osten’s Venator Capital Management.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Millennium Management. One hedge fund selling its entire position doesn’t always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don’t think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Winton Capital Management).
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Monarch Casino & Resort, Inc. (NASDAQ:MCRI) but similarly valued. These stocks are Banco Latinoamericano de Comercio Exterior, S.A. (NYSE:BLX), ArcBest Corp (NASDAQ:ARCB), Armada Hoffler Properties Inc (NYSE:AHH), and Consolidated Communications Holdings Inc (NASDAQ:CNSL). This group of stocks’ market values are similar to MCRI’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BLX | 1 | 6043 | 0 |
| ARCB | 12 | 59795 | 2 |
| AHH | 11 | 59825 | 2 |
| CNSL | 11 | 13357 | -3 |
| Average | 8.75 | 34755 | 0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 8.75 hedge funds with bullish positions and the average amount invested in these stocks was $35 million. That figure was $130 million in MCRI’s case. ArcBest Corp (NASDAQ:ARCB) is the most popular stock in this table. On the other hand Banco Latinoamericano de Comercio Exterior, S.A. (NYSE:BLX) is the least popular one with only 1 bullish hedge fund positions. Monarch Casino & Resort, Inc. (NASDAQ:MCRI) 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 6.2% in Q2 through June 19th and outperformed the S&P 500 ETF (SPY) by nearly 3 percentage points. Unfortunately MCRI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on MCRI were disappointed as the stock returned -2.7% during the same period 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 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
