Penn National Gaming, Inc (PENN) Fell Out Of Favor With Hedge Funds

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money 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 (like Melvin Capital’s recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Penn National Gaming, Inc (NASDAQ:PENN).

Penn National Gaming, Inc (NASDAQ:PENN) investors should be aware of a decrease in enthusiasm from smart money in recent months. Penn National Gaming, Inc (NASDAQ:PENN) was in 38 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 45. There were 40 hedge funds in our database with PENN positions at the end of the second quarter. Our calculations also showed that PENN isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

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. Keeping this in mind we’re going to take a peek at the new hedge fund action regarding Penn National Gaming, Inc (NASDAQ:PENN).

Matthew Halbower Pentwater Capital

Matthew Halbower of Pentwater Capital

Do Hedge Funds Think PENN Is A Good Stock To Buy Now?

At third quarter’s end, a total of 38 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -5% from the second quarter of 2021. The graph below displays the number of hedge funds with bullish position in PENN over the last 25 quarters. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were upping their stakes significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Gavin Baker’s Atreides Management has the largest position in Penn National Gaming, Inc (NASDAQ:PENN), worth close to $350.5 million, accounting for 8.3% of its total 13F portfolio. Coming in second is Whale Rock Capital Management, managed by Alex Sacerdote, which holds a $148.1 million position; 1% of its 13F portfolio is allocated to the stock. Other peers with similar optimism include Ken Griffin’s Citadel Investment Group, Josh Resnick’s Jericho Capital Asset Management and Israel Englander’s Millennium Management. In terms of the portfolio weights assigned to each position Isomer Partners allocated the biggest weight to Penn National Gaming, Inc (NASDAQ:PENN), around 11.8% of its 13F portfolio. Atreides Management is also relatively very bullish on the stock, designating 8.28 percent of its 13F equity portfolio to PENN.

Since Penn National Gaming, Inc (NASDAQ:PENN) has experienced bearish sentiment from the aggregate hedge fund industry, we can see that there was a specific group of funds that elected to cut their full holdings last quarter. Interestingly, Parag Vora’s HG Vora Capital Management dumped the biggest position of all the hedgies monitored by Insider Monkey, comprising an estimated $191.2 million in stock. Kenneth Tropin’s fund, Graham Capital Management, also said goodbye to its stock, about $75.3 million worth. These bearish behaviors are intriguing to say the least, as aggregate hedge fund interest was cut by 2 funds last quarter.

Let’s go over hedge fund activity in other stocks similar to Penn National Gaming, Inc (NASDAQ:PENN). These stocks are Western Alliance Bancorporation (NYSE:WAL), Essential Utilities Inc (NYSE:WTRG), Playtika Holding Corp. (NASDAQ:PLTK), Fair Isaac Corporation (NYSE:FICO), Black Knight, Inc. (NYSE:BKI), Snap-on Incorporated (NYSE:SNA), and Targa Resources Corp (NYSE:TRGP). This group of stocks’ market caps are similar to PENN’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WAL 29 291818 1
WTRG 19 435811 6
PLTK 25 520101 -1
FICO 37 1004312 9
BKI 38 775299 5
SNA 29 551227 -2
TRGP 26 567252 0
Average 29 592260 2.6

View table here if you experience formatting issues.

As you can see these stocks had an average of 29 hedge funds with bullish positions and the average amount invested in these stocks was $592 million. That figure was $1081 million in PENN’s case. Black Knight, Inc. (NYSE:BKI) is the most popular stock in this table. On the other hand Essential Utilities Inc (NYSE:WTRG) is the least popular one with only 19 bullish hedge fund positions. Penn National Gaming, Inc (NASDAQ:PENN) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PENN is 78.3. 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. 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 28.6% in 2021 through November 30th and beat the market again by 5.6 percentage points. Unfortunately PENN wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on PENN were disappointed as the stock returned -29.3% since the end of September (through 11/30) 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.