MGM Most Added Consumer Cyclical Stock by Hedge Funds in Q2

According to a Morgan Stanley examination of Form 13F filings, MGM Resorts International (NYSE: MGM) was the most added consumer discretionary stock by hedge funds in the second quarter.

According to the investment bank, ownership of MGM shares increased 4.8% between April and June based on changes in hedge fund positions, which is good for the largest rise among all consumer cyclical stocks held by hedge funds.

Given hedge funds' historical interest in gaming stocks and the fact that some of those money managers dramatically increased their holdings in MGM competitors during the second quarter of the 13F filing season, it is an outstanding accomplishment for the Bellagio operator.  In the June quarter, several hedge funds increased their holdings in gaming equities, while others reduced or stopped doing so.

Morgan Stanley reports that none of the three greatest hedge fund consumer cyclical cutbacks during the second quarter included names related to gambling, while MGM was the only gaming stock among the top three consumer discretionary purchases by hedge funds.

Rewarding Hedge Funds for MGM Bets

MGM has been a favorite of hedge funds and special situation investors for a variety of time periods, just like other casino stocks.  The stock bets made by those market players in the second quarter seem to have paid off.

MGM closed at $25.79 on April 8 after a tariff-induced decline that forced short sellers to rush to the shares, but the stock has since been on a wild ride, rising to $36.10 as of this writing.  This is in spite of poor second-quarter performance on the Las Vegas Strip, where MGM is the biggest operator, and more of the same is anticipated this quarter.

Strength in the BetMGM segment and a rebounding gross gaming revenue (GGR) in Macau were eclipsed by that, but market watchers have noted that while those are good catalysts, the benefits on MGM shares are limited because the business only controls half of BetMGM and roughly 56% of MGM China.

One may argue that by supporting MGM in the second quarter, hedge funds made audacious wagers against the backdrop of Las Vegas's decline.  It won't be known until the next 13F reporting season starts later this year how many people were trapped with the stock in the current quarter.

MGM Initiators

Hedge funds frequently keep their stock buying and selling strategies under wraps, but in the case of MGM, it's likely that the money managers saw second-quarter value in the company's name or that different triggers might be developing.

Room improvements at the MGM Grand on the Strip will be finished by the October Las Vegas Grand Prix, and MGM casino hotels saw strong occupancy over the July weekend, according to a recent note from Jefferies analyst David Katz.

Additionally, when regulators in Yonkers, New York, award three downstate licenses later this year, there is a higher than usual probability that the operator's Empire City Casino will be approved to transform into a Las Vegas-style gaming establishment.