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In this article you are going to find out whether hedge funds think Bright Scholar Education Holdings Limited (NYSE:BEDU) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Is BEDU a good stock to buy now? Bright Scholar Education Holdings Limited (NYSE:BEDU) shares haven't seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 7 hedge funds' portfolios at the end of the third quarter of 2020. Our calculations also showed that BEDU isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video for a quick look at the top 5 stocks). The level and the change in hedge fund popularity aren't the only variables you need to analyze to decipher hedge funds' perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That's why at the end of this article we will examine companies such as The Gorman-Rupp Company (NYSE:GRC), Magnite Inc. (NASDAQ:MGNI), and Oric Pharmaceuticals, Inc. (NASDAQ:ORIC) to gather more data points.
Video: Watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Lei Zhang of Hillhouse Capital Management
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 5 best cheap stocks to buy according to Ray Dalio to identify stocks with upside potential. 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. Keeping this in mind we're going to take a peek at the latest hedge fund action regarding Bright Scholar Education Holdings Limited (NYSE:BEDU).
How have hedgies been trading Bright Scholar Education Holdings Limited (NYSE:BEDU)?
At the end of September, a total of 7 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2020. By comparison, 9 hedge funds held shares or bullish call options in BEDU a year ago. With hedgies' capital changing hands, there exists an "upper tier" of key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
The largest stake in Bright Scholar Education Holdings Limited (NYSE:BEDU) was held by Indus Capital, which reported holding $30 million worth of stock at the end of September. It was followed by Hillhouse Capital Management with a $25.5 million position. Other investors bullish on the company included Serenity Capital, Renaissance Technologies, and D E Shaw. In terms of the portfolio weights assigned to each position Indus Capital allocated the biggest weight to Bright Scholar Education Holdings Limited (NYSE:BEDU), around 4.44% of its 13F portfolio. Serenity Capital is also relatively very bullish on the stock, designating 2.58 percent of its 13F equity portfolio to BEDU.
We view hedge fund activity in the stock unfavorable, but in this case there was only a single hedge fund selling its entire position: Two Sigma Advisors. One hedge fund selling its entire position doesn't always imply a bearish intent. Theoretically a hedge fund may decide to sell a promising position in order to invest the proceeds in a more promising idea. However, we don't think this is the case in this case because only one of the 800+ hedge funds tracked by Insider Monkey identified as a viable investment and initiated a position in the stock (that fund was Citadel Investment Group).
Let's check out hedge fund activity in other stocks similar to Bright Scholar Education Holdings Limited (NYSE:BEDU). These stocks are The Gorman-Rupp Company (NYSE:GRC), Magnite Inc. (NASDAQ:MGNI), Oric Pharmaceuticals, Inc. (NASDAQ:ORIC), GrowGeneration Corp. (NASDAQ:GRWG), Cincinnati Bell Inc. (NYSE:CBB), First Commonwealth Financial (NYSE:FCF), and Endo International plc (NASDAQ:ENDP). This group of stocks' market values resemble BEDU's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GRC,10,37246,0 MGNI,25,143850,1 ORIC,10,173916,-1 GRWG,10,56404,-1 CBB,16,134906,1 FCF,18,27940,3 ENDP,17,159822,-4 Average,15.1,104869,-0.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 15.1 hedge funds with bullish positions and the average amount invested in these stocks was $105 million. That figure was $73 million in BEDU's case. Magnite Inc. (NASDAQ:MGNI) is the most popular stock in this table. On the other hand The Gorman-Rupp Company (NYSE:GRC) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Bright Scholar Education Holdings Limited (NYSE:BEDU) is even less popular than GRC. Our overall hedge fund sentiment score for BEDU is 18.1. 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. Hedge funds dodged a bullet by taking a bearish stance towards BEDU. Our calculations showed that the top 20 most popular hedge fund stocks returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd but managed to beat the market again by 16 percentage points. Unfortunately BEDU wasn't nearly as popular as these 20 stocks (hedge fund sentiment was very bearish); BEDU investors were disappointed as the stock returned -4.5% since the end of the third quarter (through 12/2) 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 so far in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.