Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 835 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their December 31 holdings, data that is available nowhere else. Should you consider Nelnet, Inc. (NYSE:NNI) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.
Is Nelnet, Inc. (NYSE:NNI) the right pick for your portfolio? The smart money is taking a bullish view. The number of bullish hedge fund positions moved up by 2 lately. Our calculations also showed that NNI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In the 21st century investor’s toolkit there are tons of indicators investors have at their disposal to grade their holdings. Some of the most underrated indicators are hedge fund and insider trading activity. Our experts have shown that, historically, those who follow the best picks of the elite fund managers can outperform the market by a superb margin (see the details here).
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We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to review the new hedge fund action encompassing Nelnet, Inc. (NYSE:NNI).
What does smart money think about Nelnet, Inc. (NYSE:NNI)?
Heading into the first quarter of 2020, a total of 14 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 17% from the third quarter of 2019. Below, you can check out the change in hedge fund sentiment towards NNI over the last 18 quarters. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
Among these funds, Magnolia Capital Fund held the most valuable stake in Nelnet, Inc. (NYSE:NNI), which was worth $70.4 million at the end of the third quarter. On the second spot was Harspring Capital Management which amassed $10.4 million worth of shares. Tegean Capital Management, Citadel Investment Group, and AQR 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 Tegean Capital Management allocated the biggest weight to Nelnet, Inc. (NYSE:NNI), around 8.64% of its 13F portfolio. Magnolia Capital Fund is also relatively very bullish on the stock, designating 8.2 percent of its 13F equity portfolio to NNI.
As one would reasonably expect, some big names have jumped into Nelnet, Inc. (NYSE:NNI) headfirst. Harspring Capital Management, managed by Harry Gail, created the biggest position in Nelnet, Inc. (NYSE:NNI). Harspring Capital Management had $10.4 million invested in the company at the end of the quarter. Thomas G. Maheras’s Tegean Capital Management also initiated a $5.8 million position during the quarter. The following funds were also among the new NNI investors: Israel Englander’s Millennium Management, Donald Sussman’s Paloma Partners, and Frederick DiSanto’s Ancora Advisors.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Nelnet, Inc. (NYSE:NNI) but similarly valued. We will take a look at Zogenix, Inc. (NASDAQ:ZGNX), Progyny, Inc. (NASDAQ:PGNY), Stepan Company (NYSE:SCL), and First Bancorp (NYSE:FBP). This group of stocks’ market valuations resemble NNI’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ZGNX | 33 | 928215 | -1 |
| PGNY | 8 | 20023 | 8 |
| SCL | 13 | 71721 | -2 |
| FBP | 32 | 194396 | 11 |
| Average | 21.5 | 303589 | 4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.5 hedge funds with bullish positions and the average amount invested in these stocks was $304 million. That figure was $101 million in NNI’s case. Zogenix, Inc. (NASDAQ:ZGNX) is the most popular stock in this table. On the other hand Progyny, Inc. (NASDAQ:PGNY) is the least popular one with only 8 bullish hedge fund positions. Nelnet, Inc. (NYSE:NNI) 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 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately NNI wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); NNI investors were disappointed as the stock returned -31% during the same time period 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 most of these stocks already outperformed the market in Q1.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
