Heartland Advisors, an investment management firm, published its “Heartland Mid Cap Value Fund” second-quarter 2021 investor letter – a copy of which can be downloaded here. In the letter, the fund mentioned that its stock selection was strong in several sectors, and the portfolio finished the first half of the year ahead of its Russell Midcap® Value benchmark. You can take a look at the fund’s top 5 holdings to have an idea about their top bets for 2021.
In the Q2 2021 investor letter of Heartland Advisors, the fund mentioned Grand Canyon Education, Inc. (NASDAQ: LOPE) and discussed its stance on the firm. Grand Canyon Education, Inc. is a Phoenix, Arizona-based post-secondary education services provider with a $3.9 billion market capitalization. LOPE delivered a -5.51% return since the beginning of the year, while its 12-month returns are up by -7.86%. The stock closed at $88.10 per share on August 16, 2021.
Here is what Heartland Advisors has to say about Grand Canyon Education, Inc. in its Q2 2021 investor letter:
“For more than a year, the markets have been operating in unchartered territory. From the havoc caused by mandated shutdowns and surges in COVID infections to the long-term effects—both planned and unanticipated—brought about by historic levels of fiscal stimulus, much of what has shaped the investment landscape over the past 18 months is without precedent. Instead of trying to predict how long the current boom will last, we have instead used recent volatility as an opportunity to uncover businesses where we believe valuations reflect a misunderstanding of risk and those businesses that are poised to succeed against a variety of backdrops. Recent portfolio addition Grand Canyon Education Inc. (LOPE) is an example of this approach.
Grand Canyon offers post-secondary education through traditional campus settings and a growing online presence. Its Orbis unit also provides healthcare curricula to leading universities across the country.
Grand Canyon reported weaker than anticipated enrollment data for its first quarter of 2021, causing the stock to sell off, which provided an attractive buying opportunity for the portfolio. We believe the shortfall is a temporary setback and shouldn’t tarnish the appeal of the business. We remain constructive on the company because it is a differentiated consumer holding that is less affected by the strength of the economy compared with other businesses in the sector. The company boasts high returns on capital and yet trades at less than 14x estimated 2022 earnings and offers a 7% free cash flow/enterprise value yield.
Given Grand Canyon’s strong graduation and job placement performance, the company offers an attractive value proposition for prospective students. Consequently, we don’t believe soft enrollment trends will endure. Additionally, management continues to invest in its Orbis unit. While the investment is a headwind to earnings in the near-term, we believe it will result in additional profits as the unit gains scale.”
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Based on our calculations, Grand Canyon Education, Inc. (NASDAQ: LOPE) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. LOPE was in 24 hedge fund portfolios at the end of the first quarter of 2021, compared to 26 funds in the fourth quarter of 2020. Grand Canyon Education, Inc. (NASDAQ: LOPE) delivered a -6.98% return in the past 3 months.
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 115 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.
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Disclosure: None. This article is originally published at Insider Monkey.
