Were Hedge Funds Right About Piling Into SeaWorld Entertainment Inc (SEAS)?

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 SeaWorld Entertainment Inc (NYSE:SEAS).

SeaWorld Entertainment Inc (NYSE:SEAS) was in 41 hedge funds’ portfolios at the end of June. The all time high for this statistic was previously 39. This means the bullish number of hedge fund positions in this stock currently sits at its new all time high. SEAS investors should be aware of an increase in hedge fund sentiment of late. There were 39 hedge funds in our database with SEAS positions at the end of the first quarter. Our calculations also showed that SEAS isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

To most shareholders, hedge funds are viewed as underperforming, old investment vehicles of years past. While there are greater than 8000 funds trading today, Our researchers choose to focus on the masters of this group, about 850 funds. These money managers manage bulk of all hedge funds’ total capital, and by keeping an eye on their highest performing stock picks, Insider Monkey has come up with numerous investment strategies that have historically defeated Mr. Market. Insider Monkey’s flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Also, our monthly newsletter’s portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. Keeping this in mind let’s take a peek at the key hedge fund action encompassing SeaWorld Entertainment Inc (NYSE:SEAS).

Do Hedge Funds Think SEAS Is A Good Stock To Buy Now?

At the end of June, a total of 41 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from the previous quarter. By comparison, 27 hedge funds held shares or bullish call options in SEAS a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Scott Ross’s Hill Path Capital has the number one position in SeaWorld Entertainment Inc (NYSE:SEAS), worth close to $1.3586 billion, accounting for 77.9% of its total 13F portfolio. On Hill Path Capital’s heels is Gabriel Plotkin of Melvin Capital Management, with a $212.2 million position; the fund has 1.2% of its 13F portfolio invested in the stock. Remaining professional money managers that are bullish contain Jack Woodruff’s Candlestick Capital Management, John Overdeck and David Siegel’s Two Sigma Advisors and Ken Griffin’s Citadel Investment Group. In terms of the portfolio weights assigned to each position Hill Path Capital allocated the biggest weight to SeaWorld Entertainment Inc (NYSE:SEAS), around 77.87% of its 13F portfolio. Sonic Capital is also relatively very bullish on the stock, earmarking 4.55 percent of its 13F equity portfolio to SEAS.

As aggregate interest increased, key hedge funds were leading the bulls’ herd. Melvin Capital Management, managed by Gabriel Plotkin, assembled the biggest call position in SeaWorld Entertainment Inc (NYSE:SEAS). Melvin Capital Management had $30 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also made a $17.4 million investment in the stock during the quarter. The following funds were also among the new SEAS investors: Brad Stephens’s Six Columns Capital, Curtis Schenker and Craig Effron’s Scoggin, and Steve Cohen’s Point72 Asset Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as SeaWorld Entertainment Inc (NYSE:SEAS) but similarly valued. These stocks are ONE Gas Inc (NYSE:OGS), WNS (Holdings) Limited (NYSE:WNS), Qualys Inc (NASDAQ:QLYS), EPR Properties (NYSE:EPR), F.N.B. Corp (NYSE:FNB), Alkermes Plc (NASDAQ:ALKS), and Option Care Health, Inc. (NASDAQ:OPCH). This group of stocks’ market values match SEAS’s market value.

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As you can see these stocks had an average of 22.3 hedge funds with bullish positions and the average amount invested in these stocks was $295 million. That figure was $1948 million in SEAS’s case. Alkermes Plc (NASDAQ:ALKS) is the most popular stock in this table. On the other hand ONE Gas Inc (NYSE:OGS) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks SeaWorld Entertainment Inc (NYSE:SEAS) is more popular among hedge funds. Our overall hedge fund sentiment score for SEAS is 87. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks returned 29.6% in 2021 through November 5th but still managed to beat the market by 3.1 percentage points. Hedge funds were also right about betting on SEAS as the stock returned 38.2% since the end of June (through 11/5) 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.