Did Hedge Funds Catch A Break With New Oriental Education & Technology Group Inc. (EDU)?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards New Oriental Education & Technology Group Inc. (NYSE:EDU) and determine whether hedge funds skillfully traded this stock.

Is New Oriental Education & Technology Group Inc. (NYSE:EDU) the right pick for your portfolio? Investors who are in the know were taking a bearish view. The number of bullish hedge fund positions were cut by 7 lately. New Oriental Education & Technology Group Inc. (NYSE:EDU) was in 32 hedge funds’ portfolios at the end of the third quarter of 2021. The all time high for this statistic is 50. Our calculations also showed that EDU isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

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 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. With all of this in mind we’re going to take a look at the recent hedge fund action surrounding New Oriental Education & Technology Group Inc. (NYSE:EDU).

David Siegel of Two Sigma Advisors

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

Heading into the fourth quarter of 2021, a total of 32 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from the second quarter of 2021. The graph below displays the number of hedge funds with bullish position in EDU over the last 25 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Among these funds, Yiheng Capital held the most valuable stake in New Oriental Education & Technology Group Inc. (NYSE:EDU), which was worth $80.8 million at the end of the third quarter. On the second spot was Two Sigma Advisors which amassed $49.5 million worth of shares. Millennium Management, Alkeon Capital Management, and Keywise Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Keywise Capital Management allocated the biggest weight to New Oriental Education & Technology Group Inc. (NYSE:EDU), around 18.86% of its 13F portfolio. IvyRock Asset Management is also relatively very bullish on the stock, designating 10.45 percent of its 13F equity portfolio to EDU.

Because New Oriental Education & Technology Group Inc. (NYSE:EDU) has experienced bearish sentiment from the aggregate hedge fund industry, it’s easy to see that there were a few hedge funds that decided to sell off their full holdings last quarter. It’s worth mentioning that Dennis Puri and Oliver Keller’s Hunt Lane Capital cut the largest stake of all the hedgies monitored by Insider Monkey, valued at about $65.5 million in stock. Benjamin A. Smith’s fund, Laurion Capital Management, also dumped its stock, about $45 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest dropped by 7 funds last quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as New Oriental Education & Technology Group Inc. (NYSE:EDU) but similarly valued. These stocks are Applied Industrial Technologies Inc (NYSE:AIT), The Beauty Health Company (NASDAQ:SKIN), Parsons Corporation (NYSE:PSN), PotlatchDeltic Corporation (NASDAQ:PCH), Copa Holdings, S.A. (NYSE:CPA), CommVault Systems, Inc. (NASDAQ:CVLT), and 3D Systems Corporation (NYSE:DDD). This group of stocks’ market valuations are similar to EDU’s market valuation.

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As you can see these stocks had an average of 19.9 hedge funds with bullish positions and the average amount invested in these stocks was $310 million. That figure was $390 million in EDU’s case. The Beauty Health Company (NASDAQ:SKIN) is the most popular stock in this table. On the other hand Parsons Corporation (NYSE:PSN) is the least popular one with only 8 bullish hedge fund positions. New Oriental Education & Technology Group Inc. (NYSE:EDU) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for EDU is 55.9. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. 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 gained 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, EDU wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on EDU were disappointed as the stock returned -30.2% since the end of September (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.

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