How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Red Rock Resorts, Inc. (NASDAQ:RRR).
Red Rock Resorts, Inc. (NASDAQ:RRR) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 26 hedge funds’ portfolios at the end of September. Our calculations also showed that RRR isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). At the end of this article we will also compare RRR to other stocks including MicroStrategy Incorporated (NASDAQ:MSTR), United States Steel Corporation (NYSE:X), and NeoGenomics, Inc. (NASDAQ:NEO) to get a better sense of its popularity.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now let’s take a glance at the recent hedge fund action regarding Red Rock Resorts, Inc. (NASDAQ:RRR).
Ricky Sandler of Eminence Capital
Do Hedge Funds Think RRR Is A Good Stock To Buy Now?
At the end of September, a total of 26 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. On the other hand, there were a total of 29 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.
Among these funds, Eminence Capital held the most valuable stake in Red Rock Resorts, Inc. (NASDAQ:RRR), which was worth $221.6 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $55.7 million worth of shares. Shellback Capital, PAR Capital Management, and Renaissance Technologies 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 Eminence Capital allocated the biggest weight to Red Rock Resorts, Inc. (NASDAQ:RRR), around 2.99% of its 13F portfolio. Shellback Capital is also relatively very bullish on the stock, dishing out 1.64 percent of its 13F equity portfolio to RRR.
Seeing as Red Rock Resorts, Inc. (NASDAQ:RRR) has witnessed bearish sentiment from the aggregate hedge fund industry, we can see that there were a few hedgies that elected to cut their full holdings last quarter. At the top of the heap, Matthew Stadelman’s Diamond Hill Capital dropped the largest position of the “upper crust” of funds monitored by Insider Monkey, worth close to $209.4 million in stock. Dmitry Balyasny’s fund, Balyasny Asset Management, also dropped its stock, about $19.8 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Red Rock Resorts, Inc. (NASDAQ:RRR) but similarly valued. These stocks are MicroStrategy Incorporated (NASDAQ:MSTR), United States Steel Corporation (NYSE:X), NeoGenomics, Inc. (NASDAQ:NEO), Remitly Global, Inc. (NASDAQ:RELY), Antero Resources Corp (NYSE:AR), Exponent, Inc. (NASDAQ:EXPO), and DCP Midstream LP (NYSE:DCP). This group of stocks’ market caps match RRR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MSTR | 16 | 181258 | 0 |
| X | 26 | 576396 | -13 |
| NEO | 16 | 105106 | 3 |
| RELY | 24 | 539250 | 24 |
| AR | 41 | 973021 | 8 |
| EXPO | 21 | 126075 | 1 |
| DCP | 4 | 18162 | 1 |
| Average | 21.1 | 359895 | 3.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.1 hedge funds with bullish positions and the average amount invested in these stocks was $360 million. That figure was $439 million in RRR’s case. Antero Resources Corp (NYSE:AR) is the most popular stock in this table. On the other hand DCP Midstream LP (NYSE:DCP) is the least popular one with only 4 bullish hedge fund positions. Red Rock Resorts, Inc. (NASDAQ:RRR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for RRR is 60.7. 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. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 31.1% in 2021 through December 9th and beat the market again by 5.1 percentage points. Unfortunately RRR wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on RRR were disappointed as the stock returned 3% since the end of September (through 12/9) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.
