We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. A whopping number of 13F filings filed with U.S. Securities and Exchange Commission has been processed by Insider Monkey so that individual investors can look at the overall hedge fund sentiment towards the stocks included in their watchlists. These freshly-submitted public filings disclose money managers’ equity positions as of the end of the three-month period that ended December 31, so let’s proceed with the discussion of the hedge fund sentiment on Laureate Education, Inc. (NASDAQ:LAUR).
Is Laureate Education, Inc. (NASDAQ:LAUR) a safe stock to buy now? The smart money is taking a bullish view. The number of bullish hedge fund bets went up by 7 recently. Our calculations also showed that LAUR 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). LAUR was in 34 hedge funds’ portfolios at the end of December. There were 27 hedge funds in our database with LAUR positions at the end of the previous quarter.
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 S&P 500 ETFs by 41 percentage points since March 2017 (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.
Jeffrey Tannenbaum of Fir Tree
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 let’s review the latest hedge fund action regarding Laureate Education, Inc. (NASDAQ:LAUR).
What have hedge funds been doing with Laureate Education, Inc. (NASDAQ:LAUR)?
Heading into the first quarter of 2020, a total of 34 of the hedge funds tracked by Insider Monkey were long this stock, a change of 26% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in LAUR over the last 18 quarters. With hedge funds’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
The largest stake in Laureate Education, Inc. (NASDAQ:LAUR) was held by Fir Tree, which reported holding $72.8 million worth of stock at the end of September. It was followed by Park West Asset Management with a $62.6 million position. Other investors bullish on the company included Nut Tree Capital, Select Equity Group, and D E Shaw. In terms of the portfolio weights assigned to each position Nut Tree Capital allocated the biggest weight to Laureate Education, Inc. (NASDAQ:LAUR), around 13.2% of its 13F portfolio. Fir Tree is also relatively very bullish on the stock, setting aside 7.18 percent of its 13F equity portfolio to LAUR.
Consequently, key hedge funds have jumped into Laureate Education, Inc. (NASDAQ:LAUR) headfirst. Dendur Capital, managed by Malcolm Levine, initiated the most outsized position in Laureate Education, Inc. (NASDAQ:LAUR). Dendur Capital had $15.2 million invested in the company at the end of the quarter. Angela Aldrich’s Bayberry Capital Partners also initiated a $13.4 million position during the quarter. The other funds with new positions in the stock are Zachary Miller’s Parian Global Management, John Overdeck and David Siegel’s Two Sigma Advisors, and Donald Sussman’s Paloma Partners.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Laureate Education, Inc. (NASDAQ:LAUR) but similarly valued. These stocks are Outfront Media Inc (NYSE:OUT), Chimera Investment Corporation (NYSE:CIM), Mercury Systems Inc (NASDAQ:MRCY), and Aaron’s, Inc. (NYSE:AAN). This group of stocks’ market values are closest to LAUR’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| OUT | 31 | 486631 | -2 |
| CIM | 14 | 123344 | 1 |
| MRCY | 24 | 50633 | 2 |
| AAN | 32 | 368602 | 14 |
| Average | 25.25 | 257303 | 3.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.25 hedge funds with bullish positions and the average amount invested in these stocks was $257 million. That figure was $360 million in LAUR’s case. Aaron’s, Inc. (NYSE:AAN) is the most popular stock in this table. On the other hand Chimera Investment Corporation (NYSE:CIM) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Laureate Education, Inc. (NASDAQ:LAUR) is more popular among hedge funds. 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 and still beat the market by 5.5 percentage points. Unfortunately LAUR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on LAUR were disappointed as the stock returned -41.6% during the first two and a half months of 2020 (through March 25th) 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.
