Were These Hedge Funds Wrong About Selling New Oriental Education & Technology Group Inc. (EDU)?

Keeping this in mind, let’s analyze whether New Oriental Education & Technology Group Inc. (NYSE:EDU) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market when we factor in known risk factors.

Is New Oriental Education & Technology Group Inc. (NYSE:EDU) a cheap stock to buy now? Investors who are in the know were in a bearish mood. The number of bullish hedge fund bets went down by 3 lately. New Oriental Education & Technology Group Inc. (NYSE:EDU) was in 39 hedge funds’ portfolios at the end of June. The all time high for this statistics is 50. Our calculations also showed that EDU isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings and see the video for a quick look at the top 5 stocks). There were 42 hedge funds in our database with EDU positions at the end of the first quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Chase Coleman of Tiger Global

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. Now let’s review the key hedge fund action regarding New Oriental Education & Technology Group Inc. (NYSE:EDU).

How have hedgies been trading New Oriental Education & Technology Group Inc. (NYSE:EDU)?

At Q2’s end, a total of 39 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -7% from one quarter earlier. On the other hand, there were a total of 32 hedge funds with a bullish position in EDU a year ago. With hedge funds’ capital changing hands, there exists a select group of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in New Oriental Education & Technology Group Inc. (NYSE:EDU), which was worth $359 million at the end of the third quarter. On the second spot was Tiger Global Management LLC which amassed $278.9 million worth of shares. Alkeon Capital Management, GQG Partners, and Farallon 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 Kylin Management allocated the biggest weight to New Oriental Education & Technology Group Inc. (NYSE:EDU), around 17.42% of its 13F portfolio. Miura Global Management is also relatively very bullish on the stock, setting aside 7.84 percent of its 13F equity portfolio to EDU.

Since New Oriental Education & Technology Group Inc. (NYSE:EDU) has witnessed falling interest from the aggregate hedge fund industry, logic holds that there lies a certain “tier” of hedgies who were dropping their positions entirely in the second quarter. It’s worth mentioning that Gabriel Plotkin’s Melvin Capital Management dumped the biggest stake of the 750 funds followed by Insider Monkey, totaling close to $285.6 million in stock, and Larry Chen and Terry Zhang’s Tairen Capital was right behind this move, as the fund dropped about $67.2 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 3 funds in the second quarter.

Let’s go over hedge fund activity in other stocks similar to New Oriental Education & Technology Group Inc. (NYSE:EDU). We will take a look at Canadian Natural Resources Limited (NYSE:CNQ), AMETEK, Inc. (NYSE:AME), AmerisourceBergen Corporation (NYSE:ABC), Carvana Co. (NYSE:CVNA), Alexandria Real Estate Equities Inc (NYSE:ARE), Realty Income Corporation (NYSE:O), and Hilton Worldwide Holdings Inc (NYSE:HLT). This group of stocks’ market valuations match EDU’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 36.1 hedge funds with bullish positions and the average amount invested in these stocks was $1493 million. That figure was $1379 million in EDU’s case. Carvana Co. (NYSE:CVNA) is the most popular stock in this table. On the other hand Realty Income Corporation (NYSE:O) is the least popular one with only 17 bullish hedge fund positions. New Oriental Education & Technology Group Inc. (NYSE:EDU) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for EDU is 52.9. 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. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 23% in 2020 through October 30th and still beat the market by 20.1 percentage points. Hedge funds were also right about betting on EDU as the stock returned 23.2% since the end of Q2 (through 10/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Disclosure: None. This article was originally published at Insider Monkey.