Balyasny Asset Management is a $12.38 billion Chicago-based hedge fund led by Dmitry Balyasny. Founded in 2001, Balyasny’s fund is a multi-strategy fund specializing in macro investing. It was revealed through the fund’s 13F filing for the reporting period of March 31 that Balyasny is primarily invested in the consumer discretionary, information technology, and finance sectors, with combined exposure of over 60% to those sectors in his public equity portfolio. We took a look at the money manager’s top small-cap stocks and found an interesting connection: two of them, Penn National Gaming, Inc (NASDAQ:PENN), and Churchill Downs, Inc. (NASDAQ:CHDN) are in the horse racing industry, which was all over the news this past weekend as American Pharoah became the first horse in 37 years to win the Triple Crown. Could the iconic event revitalize the horse racing industry in the U.S, leading to a period of strong growth for these two stocks? We’ll look at those, plus Balyasny’s other top small-cap pick, Cypress Semiconductor Corporation (NASDAQ:CY), in this article.
Professional investors like Balyasny spend considerable time and money conducting due diligence on each company they invest in, which makes them the perfect investors to emulate. However, we also know that the returns of hedge funds on the whole have not been good for several years, underperforming the market. We analyzed the historical stock picks of these investors and our research revealed that the small-cap picks of these funds performed far better than their large-cap picks, which is where most of their money is invested and why their performances as a whole have been poor. Why pay fees to invest in both the best and worst ideas of a particular hedge fund when you can simply mimic the best ideas of the best fund managers on your own? A portfolio consisting of the 15 most popular small-cap stock picks among the funds we track has returned more than 142% and beaten the market by more than 84 percentage points since the end of August 2012, and by 4.6 percentage points in the first quarter of this year (see the details).
Balyasny’s stake in Pennsylvania-based Penn National Gaming Inc, (NASDAQ:PENN) is his top small-cap pick, and was increased during the first quarter by 58% to 7.56 million shares with a value of $118.35 million. The gaming and racing company, founded in 1972 and led by CEO Timothy J. Wilmot, has returned nearly 26% year-to-date. Analysts have also increased their expectations for the company based on the opening of the Plainridge Casino in Massachusetts this June, in addition to the planned opening of the Hollywood Casino Jamul later this summer. Penn National Gaming Inc, (NASDAQ:PENN) is also in the midst of acquiring the Tropicana Casino in Las Vegas, a deal expected to be closed sometime this year. Those new openings and the acquisition of Tropicana will be added to a stable of 26 casinos run by Penn National. Analysts believe that those new casinos could increase Penn Nationals’ EBITDA by 13.3% in fiscal 2016. John Overdeck and David Siegel‘s Two Sigma Advisors also increased its stake in Penn National Gaming during the quarter, adding 123% to its stake for a total of 1.15 million shares.
Another racing and casino company lands in the second spot in terms of Balyasny’s top small-cap picks, this one being the Kentucky-based Churchill Downs, Inc. (NASDAQ:CHDN). Balyasny decreased his stake slightly during the quarter, by 2%, leaving him with 908,290 shares with a value of $104.43 million. Churchill Downs, founded in 1875, has returned an even more impressive 30% on the NASDAQ year-to-date, boosted by a record in earnings last year, making it one of the better gaming companies on the exchange. The company’s acquisition of Big Fish Games, which was closed in late 2014, is expected to further boost Churchills’ earnings and has been a driver for the stock during the spring. Churchill Downs, Inc. (NASDAQ:CHDN) was also trying to acquire a number of other casinos around the U.S during the winter, though without success. The company’s earnings for the first quarter, posted on April 27, also helped to boost the stock, with an earnings per share of $0.07 beat analysts expectations of a loss of $0.13. Other large shareholders of Churchill are Paul Reeder and Edward Shapiro‘s PAR Capital Management, owning 1.29 million shares, and Three Bays Capital, owning 1.08 million shares.
Balyasny opened a new stake in Silicon Valley-based Cypress Semiconductor Corporation (NASDAQ:CY) during the first quarter, with it consisting of 6.59 million shares valued at $92.97 million. Cypress Semiconductor Corporation (NASDAQ:CY), founded in 1982 and a public company since its IPO in 1986, has not been as fortunate as the two racing companies, losing over 6% year-to-date. Analysts do however believe there is plenty of room back to the positive side, targeting a share price $16.85 on average, potential upside of nearly 27%. This week it was revealed that Cypress’ attempts to buy Integrated Silicon Solution (NASDAQ:ISSI) have finally ended in failure after anti-trust concerns scuttled the deal. ISS was concerned that a merger of the two companies would require anti-trust filings in the U.S and Germany, the latter of which a combined company would control 70% of the market. Jerome Debs‘ Bodri Capital Management also began to build a position in Cypress by acquiring 321,867 shares with a value of $4.54 million during the first quarter.