Was The Smart Money Right About Penn National Gaming, Inc (PENN)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 887 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article we look at what those investors think of Penn National Gaming, Inc (NASDAQ:PENN).

Penn National Gaming, Inc (NASDAQ:PENN) investors should be aware of a decrease in support from the world’s most elite money managers recently. Penn National Gaming, Inc (NASDAQ:PENN) was in 41 hedge funds’ portfolios at the end of December. The all time high for this statistic is 45. Our calculations also showed that PENN isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

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 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Alex Sacerdote of Whale Rock Capital Management

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

At Q4’s end, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards PENN over the last 22 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Alex Sacerdote’s Whale Rock Capital Management has the biggest position in Penn National Gaming, Inc (NASDAQ:PENN), worth close to $474 million, amounting to 3.2% of its total 13F portfolio. On Whale Rock Capital Management’s heels is Duquesne Capital, managed by Stanley Druckenmiller, which holds a $131.1 million position; the fund has 3.5% of its 13F portfolio invested in the stock. Remaining members of the smart money that are bullish contain Eashwar Krishnan’s Tybourne Capital Management, Brandon Haley’s Holocene Advisors and Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners. In terms of the portfolio weights assigned to each position Isomer Partners allocated the biggest weight to Penn National Gaming, Inc (NASDAQ:PENN), around 9.18% of its 13F portfolio. ThornTree Capital Partners is also relatively very bullish on the stock, dishing out 6.25 percent of its 13F equity portfolio to PENN.

Since Penn National Gaming, Inc (NASDAQ:PENN) has witnessed declining sentiment from the smart money, it’s safe to say that there is a sect of hedgies that elected to cut their positions entirely by the end of the fourth quarter. Interestingly, Daniel S. Och’s OZ Management dropped the biggest investment of all the hedgies monitored by Insider Monkey, valued at about $48.3 million in stock, and Frank Fu’s CaaS Capital was right behind this move, as the fund cut about $42.8 million worth. These moves are interesting, as total hedge fund interest fell by 4 funds by the end of the fourth quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Penn National Gaming, Inc (NASDAQ:PENN) but similarly valued. These stocks are Omnicom Group Inc. (NYSE:OMC), Ally Financial Inc (NYSE:ALLY), C3.ai, Inc. (NYSE:AI), WPP Plc (NYSE:WPP), The J.M. Smucker Company (NYSE:SJM), James Hardie Industries plc (NYSE:JHX), and DaVita Inc (NYSE:DVA). This group of stocks’ market valuations are closest to PENN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
OMC 34 546941 0
ALLY 57 2593837 4
AI 37 483532 37
WPP 6 37552 -1
SJM 34 580428 3
JHX 4 11803 0
DVA 32 4814258 -2
Average 29.1 1295479 5.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.1 hedge funds with bullish positions and the average amount invested in these stocks was $1295 million. That figure was $1325 million in PENN’s case. Ally Financial Inc (NYSE:ALLY) is the most popular stock in this table. On the other hand James Hardie Industries plc (NYSE:JHX) is the least popular one with only 4 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 63.2. 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 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and beat the market again by 1.6 percentage points. Unfortunately PENN wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on PENN were disappointed as the stock returned 3.2% since the end of December (through 4/30) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 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.