Was The Smart Money Right About Jefferies Financial Group Inc. (JEF)?

Stocks, especially the once high flying technology stocks, had a lousy start to the new year. QQQ lost 9% of its value in January. We aren’t certain about the bubbly technology stocks that trade for ridiculously high multiples of their revenues, but we believe top hedge fund stocks will deliver positive returns for the rest of the year. In this article, we will take a closer look at hedge fund sentiment towards Jefferies Financial Group Inc. (NYSE:JEF) at the end of the third quarter and determine whether the smart money was really smart about this stock.

Jefferies Financial Group Inc. (NYSE:JEF) has experienced an increase in hedge fund interest recently. Jefferies Financial Group Inc. (NYSE:JEF) was in 37 hedge funds’ portfolios at the end of September. The all time high for this statistic is 39. There were 29 hedge funds in our database with JEF holdings at the end of June. Our calculations also showed that JEF isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

Christian Leone of Luxor Capital Group

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. Keeping this in mind let’s review the new hedge fund action regarding Jefferies Financial Group Inc. (NYSE:JEF).

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

At the end of September, a total of 37 of the hedge funds tracked by Insider Monkey were long this stock, a change of 28% from the second quarter of 2021. Below, you can check out the change in hedge fund sentiment towards JEF over the last 25 quarters. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

Of the funds tracked by Insider Monkey, Robert Rodriguez and Steven Romick’s First Pacific Advisors LLC has the most valuable position in Jefferies Financial Group Inc. (NYSE:JEF), worth close to $252.4 million, accounting for 3.3% of its total 13F portfolio. The second most bullish fund manager is Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, with a $142.6 million position; 0.2% of its 13F portfolio is allocated to the company. Other professional money managers with similar optimism contain Cliff Asness’s AQR Capital Management, Jeremy Hosking’s Hosking Partners and Steve Leonard’s Pacifica Capital Investments. In terms of the portfolio weights assigned to each position Moerus Capital Management allocated the biggest weight to Jefferies Financial Group Inc. (NYSE:JEF), around 10.1% of its 13F portfolio. Pacifica Capital Investments is also relatively very bullish on the stock, dishing out 9.49 percent of its 13F equity portfolio to JEF.

Now, specific money managers have jumped into Jefferies Financial Group Inc. (NYSE:JEF) headfirst. Luxor Capital Group, managed by Christian Leone, established the biggest position in Jefferies Financial Group Inc. (NYSE:JEF). Luxor Capital Group had $25.8 million invested in the company at the end of the quarter. Daniel Johnson’s Gillson Capital also made a $6.9 million investment in the stock during the quarter. The other funds with new positions in the stock are Matthew Hulsizer’s PEAK6 Capital Management, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Michael Gelband’s ExodusPoint Capital.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Jefferies Financial Group Inc. (NYSE:JEF) but similarly valued. We will take a look at Alcoa Corporation (NYSE:AA), Mirati Therapeutics, Inc. (NASDAQ:MRTX), West Fraser Timber Co. Ltd. (NYSE:WFG), XPO Logistics Inc (NYSE:XPO), Tempur Sealy International Inc. (NYSE:TPX), Concentrix Corporation (NASDAQ:CNXC), and AECOM (NYSE:ACM). This group of stocks’ market valuations resemble JEF’s market valuation.

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As you can see these stocks had an average of 36.9 hedge funds with bullish positions and the average amount invested in these stocks was $1366 million. That figure was $684 million in JEF’s case. XPO Logistics Inc (NYSE:XPO) is the most popular stock in this table. On the other hand Concentrix Corporation (NASDAQ:CNXC) is the least popular one with only 21 bullish hedge fund positions. Jefferies Financial Group Inc. (NYSE:JEF) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for JEF is 67. 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, JEF wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on JEF were disappointed as the stock returned -0.7% 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.

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