Were Hedge Funds Right About Souring On Monarch Casino & Resort, Inc. (MCRI)?

Before putting in our own effort and resources into finding a good investment, we can quickly utilize hedge fund expertise to give us a quick glimpse of whether that stock could make for a good addition to our portfolios. The odds are not exactly stacked in investors’ favor when it comes to beating the market, as evidenced by the fact that less than 49% of the stocks in the S&P 500 did so during the third quarter. The stats were even worse in recent years when most of the advances in the market were due to large gains by FAANG stocks. However, one bright side for individual investors was the strong performance of hedge funds’ top consensus picks. This year hedge funds’ top 20 stock picks outperformed the S&P 500 Index by 4 percentage points through September 30th. Thus, we can see that the tireless research and efforts of hedge funds to identify winning stocks can work to our advantage when we know how to use the data. While not all of their picks will be winners, our odds are much better following their best stock picks than trying to go it alone.

Is Monarch Casino & Resort, Inc. (NASDAQ:MCRI) worth your attention right now? Money managers are in a bearish mood. The number of bullish hedge fund bets were cut by 2 recently. Our calculations also showed that MCRI isn’t among the 30 most popular stocks among hedge funds (see the video below). MCRI was in 8 hedge funds’ portfolios at the end of June. There were 10 hedge funds in our database with MCRI 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.

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 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 40 percentage points since May 2014 through May 30, 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.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

In addition to following the biggest hedge funds for investment ideas, we also share stock pitches from conferences, investor letters and other sources  like this one where the fund manager is talking about two under the radar 1000% return potential stocks: first one in internet infrastructure and the second in the heart of advertising market. We use hedge fund buy/sell signals to determine whether to conduct in-depth analysis of these stock ideas which take days. Now we’re going to take a peek at the recent hedge fund action regarding Monarch Casino & Resort, Inc. (NASDAQ:MCRI).

What have hedge funds been doing with Monarch Casino & Resort, Inc. (NASDAQ:MCRI)?

At the end of the second quarter, a total of 8 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from the first quarter of 2019. Below, you can check out the change in hedge fund sentiment towards MCRI over the last 16 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.


More specifically, Park West Asset Management was the largest shareholder of Monarch Casino & Resort, Inc. (NASDAQ:MCRI), with a stake worth $64 million reported as of the end of March. Trailing Park West Asset Management was Lafitte Capital Management, which amassed a stake valued at $41.9 million. Renaissance Technologies, Two Sigma Advisors, and Arrowstreet Capital were also very fond of the stock, giving the stock large weights in their portfolios.

Due to the fact that Monarch Casino & Resort, Inc. (NASDAQ:MCRI) has faced falling interest from hedge fund managers, it’s safe to say that there were a few funds who were dropping their full holdings last quarter. It’s worth mentioning that Richard Driehaus’s Driehaus Capital dropped the largest position of all the hedgies monitored by Insider Monkey, valued at an estimated $4.8 million in stock, and Brandon Osten’s Venator Capital Management was right behind this move, as the fund said goodbye to about $2.7 million worth. These moves are interesting, as aggregate hedge fund interest dropped by 2 funds last quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Monarch Casino & Resort, Inc. (NASDAQ:MCRI) but similarly valued. These stocks are Extreme Networks, Inc (NASDAQ:EXTR), Triumph Bancorp Inc (NASDAQ:TBK), Northfield Bancorp Inc (NASDAQ:NFBK), and Ambac Financial Group, Inc. (NASDAQ:AMBC). This group of stocks’ market valuations are similar to MCRI’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
EXTR 19 99512 -1
TBK 7 45183 2
NFBK 2 34954 -3
AMBC 14 112980 -5
Average 10.5 73157 -1.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 10.5 hedge funds with bullish positions and the average amount invested in these stocks was $73 million. That figure was $119 million in MCRI’s case. Extreme Networks, Inc (NASDAQ:EXTR) is the most popular stock in this table. On the other hand Northfield Bancorp Inc (NASDAQ:NFBK) is the least popular one with only 2 bullish hedge fund positions. Monarch Casino & Resort, Inc. (NASDAQ:MCRI) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately MCRI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); MCRI investors were disappointed as the stock returned -2.5% during the third quarter and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far in 2019.

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