Were Hedge Funds Right About Piling Into Eldorado Resorts Inc (ERI)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Eldorado Resorts Inc (NASDAQ:ERI).

Eldorado Resorts Inc (NASDAQ:ERI) has seen an increase in activity from the world’s largest hedge funds recently. Eldorado Resorts Inc (NASDAQ:ERI) was in 49 hedge funds’ portfolios at the end of June. The all time high for this statistics is 49. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 39 hedge funds in our database with ERI positions at the end of the first quarter. Our calculations also showed that ERI isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Josh Friedman Canyon Capital

Joshua Friedman of Canyon Capital Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than quadrupled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. 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 website to get excerpts of these letters in your inbox. Keeping this in mind let’s take a look at the new hedge fund action surrounding Eldorado Resorts Inc (NASDAQ:ERI).

Hedge fund activity in Eldorado Resorts Inc (NASDAQ:ERI)

At Q2’s end, a total of 49 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 26% from the first quarter of 2020. By comparison, 37 hedge funds held shares or bullish call options in ERI a year ago. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, Joshua Friedman and Mitchell Julis’s Canyon Capital Advisors has the largest position in Eldorado Resorts Inc (NASDAQ:ERI), worth close to $210.3 million, accounting for 7% of its total 13F portfolio. The second most bullish fund manager is Peter S. Park of Park West Asset Management, with a $80.1 million call position; 4% of its 13F portfolio is allocated to the stock. Some other peers that hold long positions comprise Parag Vora’s HG Vora Capital Management, Roberto Mignone’s Bridger Management and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Toscafund Asset Management allocated the biggest weight to Eldorado Resorts Inc (NASDAQ:ERI), around 16.61% of its 13F portfolio. Lafitte Capital Management is also relatively very bullish on the stock, setting aside 16.1 percent of its 13F equity portfolio to ERI.

With a general bullishness amongst the heavyweights, some big names were leading the bulls’ herd. Scopus Asset Management, managed by Alexander Mitchell, initiated the biggest position in Eldorado Resorts Inc (NASDAQ:ERI). Scopus Asset Management had $28.6 million invested in the company at the end of the quarter. Jonathan Litt’s Land & Buildings Investment Management also made a $21.1 million investment in the stock during the quarter. The other funds with brand new ERI positions are Peter S. Park’s Park West Asset Management, Brad Stephens’s Six Columns Capital, and Martin Hughes’s Toscafund Asset Management.

Let’s now take a look at hedge fund activity in other stocks similar to Eldorado Resorts Inc (NASDAQ:ERI). We will take a look at Hawaiian Electric Industries, Inc. (NYSE:HE), Envestnet Inc (NYSE:ENV), China Biologic Products Holdings Inc (NASDAQ:CBPO), Hanesbrands Inc. (NYSE:HBI), Natera Inc (NASDAQ:NTRA), Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA), and Janus Henderson Group plc (NYSE:JHG). This group of stocks’ market caps are similar to ERI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HE 16 159237 3
ENV 19 85387 2
CBPO 23 774587 7
HBI 31 543895 -5
NTRA 35 634417 3
MNTA 42 733308 6
JHG 30 215555 7
Average 28 449484 3.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 28 hedge funds with bullish positions and the average amount invested in these stocks was $449 million. That figure was $734 million in ERI’s case. Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA) is the most popular stock in this table. On the other hand Hawaiian Electric Industries, Inc. (NYSE:HE) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks Eldorado Resorts Inc (NASDAQ:ERI) is more popular among hedge funds. Our overall hedge fund sentiment score for ERI is 90. 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 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 returned 30% in 2020 through October 23rd but still managed to beat the market by 21 percentage points. Hedge funds were also right about betting on ERI as the stock returned 36.5% since the end of June (through 10/23) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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