Were Hedge Funds Right About MGM Resorts International (MGM)?

Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind, let’s analyze whether MGM Resorts International (NYSE:MGM) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.

Is MGM Resorts International (NYSE:MGM) the right pick for your portfolio? Investors who are in the know are selling. The number of bullish hedge fund bets retreated by 2 in recent months. Our calculations also showed that MGM isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 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 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Keith Meister of Corvex Capital

Now we’re going to take a gander at the latest hedge fund action encompassing MGM Resorts International (NYSE:MGM).

Hedge fund activity in MGM Resorts International (NYSE:MGM)

At the end of the fourth quarter, a total of 50 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from one quarter earlier. On the other hand, there were a total of 46 hedge funds with a bullish position in MGM 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.

The largest stake in MGM Resorts International (NYSE:MGM) was held by Corvex Capital, which reported holding $696.6 million worth of stock at the end of September. It was followed by Canyon Capital Advisors with a $263.1 million position. Other investors bullish on the company included Renaissance Technologies, Two Sigma Advisors, and Blue Harbour Group. In terms of the portfolio weights assigned to each position Corvex Capital allocated the biggest weight to MGM Resorts International (NYSE:MGM), around 32.13% of its 13F portfolio. Blue Harbour Group is also relatively very bullish on the stock, setting aside 10.61 percent of its 13F equity portfolio to MGM.

Because MGM Resorts International (NYSE:MGM) has faced declining sentiment from hedge fund managers, we can see that there exists a select few fund managers who sold off their positions entirely in the third quarter. It’s worth mentioning that Steve Cohen’s Point72 Asset Management cut the largest stake of the “upper crust” of funds tracked by Insider Monkey, totaling about $38.8 million in stock, and John Khoury’s Long Pond Capital was right behind this move, as the fund said goodbye to about $25.2 million worth. These transactions are interesting, as total hedge fund interest fell by 2 funds in the third quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as MGM Resorts International (NYSE:MGM) but similarly valued. We will take a look at Nucor Corporation (NYSE:NUE), Healthpeak Properties, Inc. (NYSE:PEAK), Credicorp Ltd. (NYSE:BAP), and Equifax Inc. (NYSE:EFX). All of these stocks’ market caps are closest to MGM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NUE 26 237288 -2
PEAK 26 525191 -3
BAP 22 612424 -6
EFX 32 1615426 4
Average 26.5 747582 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.5 hedge funds with bullish positions and the average amount invested in these stocks was $748 million. That figure was $2231 million in MGM’s case. Equifax Inc. (NYSE:EFX) is the most popular stock in this table. On the other hand Credicorp Ltd. (NYSE:BAP) is the least popular one with only 22 bullish hedge fund positions. Compared to these stocks MGM Resorts International (NYSE:MGM) is more popular among hedge funds. 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 1.0% in 2020 through May 1st and still beat the market by 12.9 percentage points. Unfortunately MGM wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on MGM were disappointed as the stock returned -54.5% during the four months of 2020 (through May 1st) 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 most of these stocks already outperformed the market in 2020.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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