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Were Hedge Funds Right About Souring On International Game Technology PLC (IGT)?

At Insider Monkey, we pore over the filings of nearly 750 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not International Game Technology PLC (NYSE:IGT) makes for a good investment right now.

International Game Technology PLC (NYSE:IGT) has seen a decrease in hedge fund interest lately. Our calculations also showed that IGT isn’t among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.

GOTHAM ASSET MANAGEMENT

Let’s go over the key hedge fund action surrounding International Game Technology PLC (NYSE:IGT).

How have hedgies been trading International Game Technology PLC (NYSE:IGT)?

At the end of the fourth quarter, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from one quarter earlier. On the other hand, there were a total of 30 hedge funds with a bullish position in IGT a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

IGT_apr2019

Among these funds, Point72 Asset Management held the most valuable stake in International Game Technology PLC (NYSE:IGT), which was worth $116.1 million at the end of the third quarter. On the second spot was PAR Capital Management which amassed $109.3 million worth of shares. Moreover, BloombergSen, Samlyn Capital, and Rubric Capital Management were also bullish on International Game Technology PLC (NYSE:IGT), allocating a large percentage of their portfolios to this stock.

Because International Game Technology PLC (NYSE:IGT) has witnessed a decline in interest from hedge fund managers, we can see that there lies a certain “tier” of funds that slashed their positions entirely last quarter. At the top of the heap, Jim Simons’s Renaissance Technologies sold off the largest investment of the “upper crust” of funds watched by Insider Monkey, totaling an estimated $45 million in stock, and Parag Vora’s HG Vora Capital Management was right behind this move, as the fund sold off about $33.6 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 3 funds last quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as International Game Technology PLC (NYSE:IGT) but similarly valued. These stocks are Community Bank System, Inc. (NYSE:CBU), Stifel Financial Corp. (NYSE:SF), Paramount Group Inc (NYSE:PGRE), and Platform Specialty Products Corporation (NYSE:PAH). All of these stocks’ market caps are closest to IGT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CBU 11 23103 2
SF 12 161371 0
PGRE 14 134278 2
PAH 21 774954 -3
Average 14.5 273427 0.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $273 million. That figure was $590 million in IGT’s case. Platform Specialty Products Corporation (NYSE:PAH) is the most popular stock in this table. On the other hand Community Bank System, Inc. (NYSE:CBU) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks International Game Technology PLC (NYSE:IGT) is more popular among hedge funds. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately IGT wasn’t nearly as popular as these 15 stock and hedge funds that were betting on IGT were disappointed as the stock returned -3.2% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.

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

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