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

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (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. In this article, we will take a closer look at hedge fund sentiment towards MGM Resorts International (NYSE:MGM) at the end of the first quarter and determine whether the smart money was really smart about this stock.

MGM Resorts International (NYSE:MGM) shares haven’t seen a lot of action during the first quarter. Overall, hedge fund sentiment was unchanged. The stock was in 50 hedge funds’ portfolios at the end of March. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Post Holdings Inc (NYSE:POST), HubSpot Inc (NYSE:HUBS), and Royal Gold, Inc (NASDAQ:RGLD) to gather more data points. Our calculations also showed that MGM 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.

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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 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.

Parag Vora - HG Vora Capital

Parag Vora of HG Vora Capital Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to analyze the fresh hedge fund action regarding MGM Resorts International (NYSE:MGM).

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

Heading into the second quarter of 2020, a total of 50 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in MGM over the last 18 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is MGM A Good Stock To Buy?

More specifically, Corvex Capital was the largest shareholder of MGM Resorts International (NYSE:MGM), with a stake worth $264.8 million reported as of the end of September. Trailing Corvex Capital was Eminence Capital, which amassed a stake valued at $74.5 million. Blue Harbour Group, Canyon Capital Advisors, and Long Pond Capital 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 Corvex Capital allocated the biggest weight to MGM Resorts International (NYSE:MGM), around 20.48% of its 13F portfolio. Blue Harbour Group is also relatively very bullish on the stock, setting aside 12.21 percent of its 13F equity portfolio to MGM.

Seeing as MGM Resorts International (NYSE:MGM) has experienced falling interest from the smart money, logic holds that there was a specific group of fund managers that elected to cut their positions entirely last quarter. Interestingly, Parag Vora’s HG Vora Capital Management said goodbye to the biggest investment of the “upper crust” of funds watched by Insider Monkey, comprising an estimated $66.5 million in stock. Noam Gottesman’s fund, GLG Partners, also sold off its stock, about $31.9 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s go over hedge fund activity in other stocks similar to MGM Resorts International (NYSE:MGM). These stocks are Post Holdings Inc (NYSE:POST), HubSpot Inc (NYSE:HUBS), Royal Gold, Inc (NASDAQ:RGLD), and AGNC Investment Corp. (NASDAQ:AGNC). All of these stocks’ market caps resemble MGM’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
POST 31 1195411 -7
HUBS 27 662117 -3
RGLD 28 237256 -2
AGNC 27 302699 6
Average 28.25 599371 -1.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $599 million. That figure was $943 million in MGM’s case. Post Holdings Inc (NYSE:POST) is the most popular stock in this table. On the other hand HubSpot Inc (NYSE:HUBS) is the least popular one with only 27 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 returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on MGM as the stock returned 42.4% in Q2 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.