Scientific Games Corp (SGMS): Are Hedge Funds Right About This Stock?

In this article we are going to use hedge fund sentiment as a tool and determine whether Scientific Games Corp (NASDAQ:SGMS) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Is Scientific Games Corp (NASDAQ:SGMS) a buy, sell, or hold? Prominent investors were taking a bullish view. The number of long hedge fund bets went up by 1 in recent months. Scientific Games Corp (NASDAQ:SGMS) was in 24 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 33. Our calculations also showed that SGMS isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 23 hedge funds in our database with SGMS holdings at the end of March.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Now let’s review the recent hedge fund action surrounding Scientific Games Corp (NASDAQ:SGMS).

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

At the end of the second quarter, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from one quarter earlier. By comparison, 24 hedge funds held shares or bullish call options in SGMS a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Fine Capital Partners held the most valuable stake in Scientific Games Corp (NASDAQ:SGMS), which was worth $704.4 million at the end of the second quarter. On the second spot was Stone House Capital which amassed $209.1 million worth of shares. Harvard Management Co, Nantahala Capital Management, and Park West 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 Fine Capital Partners allocated the biggest weight to Scientific Games Corp (NASDAQ:SGMS), around 89.12% of its 13F portfolio. Stone House Capital is also relatively very bullish on the stock, dishing out 88.37 percent of its 13F equity portfolio to SGMS.

Now, key hedge funds were leading the bulls’ herd. Stone House Capital, managed by Mark Cohen, initiated the largest position in Scientific Games Corp (NASDAQ:SGMS). Stone House Capital had $209.1 million invested in the company at the end of the quarter. Jeffrey Jacobowitz’s Simcoe Capital Management also made a $58 million investment in the stock during the quarter. The following funds were also among the new SGMS investors: Sander Gerber’s Hudson Bay Capital Management, Matthew Hulsizer’s PEAK6 Capital Management, and Matthew Hulsizer’s PEAK6 Capital Management.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Scientific Games Corp (NASDAQ:SGMS) but similarly valued. We will take a look at Apartment Income REIT Corp. (NYSE:AIRC), RenaissanceRe Holdings Ltd. (NYSE:RNR), Olin Corporation (NYSE:OLN), Upwork Inc. (NASDAQ:UPWK), IAA, Inc. (NYSE:IAA), Gildan Activewear Inc (NYSE:GIL), and The New York Times Company (NYSE:NYT). All of these stocks’ market caps resemble SGMS’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.7 hedge funds with bullish positions and the average amount invested in these stocks was $923 million. That figure was $1452 million in SGMS’s case. The New York Times Company (NYSE:NYT) is the most popular stock in this table. On the other hand Apartment Income REIT Corp. (NYSE:AIRC) is the least popular one with only 14 bullish hedge fund positions. Scientific Games Corp (NASDAQ:SGMS) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SGMS is 42.5. 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 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 24% in 2021 through October 22nd and still beat the market by 1.6 percentage points. A small number of hedge funds were also right about betting on SGMS as the stock returned 10.4% since the end of the second quarter (through 10/22) and outperformed the market by an even larger margin.

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Disclosure: None. This article was originally published at Insider Monkey.