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Were Hedge Funds Right About Churchill Downs Incorporated (CHDN)?

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Churchill Downs Incorporated (NASDAQ:CHDN) based on that data and determine whether they were really smart about the stock.

Is Churchill Downs Incorporated (NASDAQ:CHDN) a buy right now? Prominent investors were reducing their bets on the stock. The number of long hedge fund positions went down by 1 in recent months. Our calculations also showed that CHDN isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Philip Hempleman Ardsley Partners

Philip Hempleman of Ardsley Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this tiny lithium stock. With all of this in mind we’re going to take a peek at the recent hedge fund action surrounding Churchill Downs Incorporated (NASDAQ:CHDN).

How have hedgies been trading Churchill Downs Incorporated (NASDAQ:CHDN)?

At Q1’s end, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -3% from the previous quarter. By comparison, 29 hedge funds held shares or bullish call options in CHDN a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

Among these funds, PAR Capital Management held the most valuable stake in Churchill Downs Incorporated (NASDAQ:CHDN), which was worth $108.1 million at the end of the third quarter. On the second spot was Nitorum Capital which amassed $82.8 million worth of shares. Citadel Investment Group, Hudson Way Capital Management, and Balyasny 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 Hudson Way Capital Management allocated the biggest weight to Churchill Downs Incorporated (NASDAQ:CHDN), around 15.77% of its 13F portfolio. Nitorum Capital is also relatively very bullish on the stock, setting aside 6.41 percent of its 13F equity portfolio to CHDN.

Since Churchill Downs Incorporated (NASDAQ:CHDN) has witnessed declining sentiment from the entirety of the hedge funds we track, we can see that there were a few funds who were dropping their full holdings last quarter. Intriguingly, Baker Burleson and Stormy Scott’s Banbury Partners sold off the biggest position of all the hedgies watched by Insider Monkey, worth close to $28.9 million in stock. Ben Gambill’s fund, Tiger Eye Capital, also said goodbye to its stock, about $16.6 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 1 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Churchill Downs Incorporated (NASDAQ:CHDN) but similarly valued. We will take a look at Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC), Quidel Corporation (NASDAQ:QDEL), Axalta Coating Systems Ltd (NYSE:AXTA), and Eastgroup Properties Inc (NYSE:EGP). This group of stocks’ market valuations are closest to CHDN’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TKC 3 40169 -4
QDEL 22 125541 4
AXTA 49 1105920 -11
EGP 13 36375 3
Average 21.75 327001 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $327 million. That figure was $445 million in CHDN’s case. Axalta Coating Systems Ltd (NYSE:AXTA) is the most popular stock in this table. On the other hand Turkcell Iletisim Hizmetleri A.S. (NYSE:TKC) is the least popular one with only 3 bullish hedge fund positions. Churchill Downs Incorporated (NASDAQ:CHDN) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on CHDN as the stock returned 29.3% in Q2 and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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