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. With this in mind let’s see whether SLM Corp (NASDAQ:SLM) makes for a good investment at the moment. We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
Is SLM Corp (NASDAQ:SLM) worth your attention right now? Money managers are getting more optimistic. The number of bullish hedge fund bets inched up by 10 lately. Our calculations also showed that SLM 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).
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.
Steven Tananbaum of GoldenTree Asset Management
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. With all of this in mind we’re going to take a peek at the key hedge fund action surrounding SLM Corp (NASDAQ:SLM).
What does smart money think about SLM Corp (NASDAQ:SLM)?
At the end of the fourth quarter, a total of 39 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 34% from the previous quarter. By comparison, 24 hedge funds held shares or bullish call options in SLM a year ago. With hedgies’ sentiment swirling, there exists a few notable hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).
Among these funds, ValueAct Capital held the most valuable stake in SLM Corp (NASDAQ:SLM), which was worth $349.1 million at the end of the third quarter. On the second spot was Fir Tree which amassed $94.5 million worth of shares. Point72 Asset Management, GoldenTree Asset Management, and Impactive Capital 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 Impactive Capital allocated the biggest weight to SLM Corp (NASDAQ:SLM), around 12.66% of its 13F portfolio. Fir Tree is also relatively very bullish on the stock, setting aside 9.32 percent of its 13F equity portfolio to SLM.
Consequently, key money managers were breaking ground themselves. Fir Tree, managed by Jeffrey Tannenbaum, created the largest position in SLM Corp (NASDAQ:SLM). Fir Tree had $94.5 million invested in the company at the end of the quarter. Lauren Taylor Wolfe’s Impactive Capital also made a $22.8 million investment in the stock during the quarter. The other funds with brand new SLM positions are Kenneth Squire’s 13D Management, David Harding’s Winton Capital Management, and Lee Ainslie’s Maverick Capital.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as SLM Corp (NASDAQ:SLM) but similarly valued. These stocks are PBF Energy Inc (NYSE:PBF), Yamana Gold Inc. (NYSE:AUY), SiteOne Landscape Supply, Inc. (NYSE:SITE), and AppFolio Inc (NASDAQ:APPF). This group of stocks’ market values match SLM’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PBF | 32 | 279673 | 2 |
| AUY | 16 | 262811 | -5 |
| SITE | 15 | 108926 | 1 |
| APPF | 16 | 240264 | 4 |
| Average | 19.75 | 222919 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $223 million. That figure was $634 million in SLM’s case. PBF Energy Inc (NYSE:PBF) is the most popular stock in this table. On the other hand SiteOne Landscape Supply, Inc. (NYSE:SITE) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks SLM Corp (NASDAQ:SLM) 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 but still managed to beat the market by 5.5 percentage points. Hedge funds were also right about betting on SLM, though not to the same extent, as the stock returned -19.1% during the first quarter (through March 25th) and outperformed the market as well.
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.
