Were Hedge Funds Right About Piling Into PlayAGS, Inc. (AGS)?

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. Insider Monkey finished processing more than 750 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of September 30th, 2019. In this article we are going to take a look at smart money sentiment towards PlayAGS, Inc. (NYSE:AGS).

Is PlayAGS, Inc. (NYSE:AGS) the right pick for your portfolio? Money managers are getting more optimistic. The number of bullish hedge fund bets increased by 4 recently. Our calculations also showed that AGS isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). AGS was in 16 hedge funds’ portfolios at the end of September. There were 12 hedge funds in our database with AGS holdings at the end of the previous quarter.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to 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 hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (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 27.8% through November 21, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Paul Marshall Marshall Wace

Paul Marshall of Marshall Wace

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. One of the most bullish analysts in America just put his money where his mouth is. He says, “I’m investing more today than I did back in early 2009.” So we check out his pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We also rely on the best performing hedge funds‘ buy/sell signals. We’re going to take a look at the key hedge fund action regarding PlayAGS, Inc. (NYSE:AGS).

What does smart money think about PlayAGS, Inc. (NYSE:AGS)?

Heading into the fourth quarter of 2019, a total of 16 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from the second quarter of 2019. The graph below displays the number of hedge funds with bullish position in AGS over the last 17 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in PlayAGS, Inc. (NYSE:AGS) was held by Park West Asset Management, which reported holding $18.8 million worth of stock at the end of September. It was followed by Nantahala Capital Management with a $9.3 million position. Other investors bullish on the company included Millennium Management, Marshall Wace, and D E Shaw. In terms of the portfolio weights assigned to each position Park West Asset Management allocated the biggest weight to PlayAGS, Inc. (NYSE:AGS), around 0.91% of its 13F portfolio. Diametric Capital is also relatively very bullish on the stock, earmarking 0.47 percent of its 13F equity portfolio to AGS.

As one would reasonably expect, specific money managers have jumped into PlayAGS, Inc. (NYSE:AGS) headfirst. Nantahala Capital Management, managed by Wilmot B. Harkey and Daniel Mack, assembled the most valuable position in PlayAGS, Inc. (NYSE:AGS). Nantahala Capital Management had $9.3 million invested in the company at the end of the quarter. David E. Shaw’s D E Shaw also made a $3.3 million investment in the stock during the quarter. The following funds were also among the new AGS investors: Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Minhua Zhang’s Weld Capital Management, and Nick Thakore’s Diametric Capital.

Let’s also examine hedge fund activity in other stocks similar to PlayAGS, Inc. (NYSE:AGS). These stocks are Spirit MTA REIT (NYSE:SMTA), Majesco (NASDAQ:MJCO), Fidus Investment Corp (NASDAQ:FDUS), and Orchid Island Capital, Inc. (NYSE:ORC). This group of stocks’ market values resemble AGS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SMTA 17 114467 -2
MJCO 2 241 -1
FDUS 4 10240 -1
ORC 4 13940 0
Average 6.75 34722 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 6.75 hedge funds with bullish positions and the average amount invested in these stocks was $35 million. That figure was $46 million in AGS’s case. Spirit MTA REIT (NYSE:SMTA) is the most popular stock in this table. On the other hand Majesco (NASDAQ:MJCO) is the least popular one with only 2 bullish hedge fund positions. PlayAGS, Inc. (NYSE:AGS) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on AGS as the stock returned 11.8% during the fourth quarter (through the end of November) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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