Before we spend days researching a stock idea we'd like to take a look at how hedge funds and billionaire investors recently traded that stock. S&P 500 Index ETF (SPY) lost 2.6% in the first two months of the second quarter. Ten out of 11 industry groups in the S&P 500 Index lost value in May. The average return of a randomly picked stock in the index was even worse (-3.6%). This means you (or a monkey throwing a dart) have less than an even chance of beating the market by randomly picking a stock. On the other hand, the top 20 most popular S&P 500 stocks among hedge funds not only generated positive returns but also outperformed the index by about 3 percentage points through May 30th. In this article, we will take a look at what hedge funds think about Career Education Corp. (NASDAQ:CECO).
Hedge fund interest in Career Education Corp. (NASDAQ:CECO) shares was flat at the end of last quarter. This is usually a negative indicator. 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 Rambus Inc. (NASDAQ:RMBS), Xperi Corporation (NASDAQ:XPER), and Brookline Bancorp, Inc. (NASDAQ:BRKL) to gather more data points.
Today there are plenty of formulas market participants have at their disposal to appraise publicly traded companies. Two of the most underrated formulas are hedge fund and insider trading moves. We have shown that, historically, those who follow the best picks of the top fund managers can beat the market by a healthy margin (see the details here).
Let's go over the new hedge fund action regarding Career Education Corp. (NASDAQ:CECO).
What have hedge funds been doing with Career Education Corp. (NASDAQ:CECO)?
Heading into the second quarter of 2019, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in CECO over the last 15 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).
More specifically, Renaissance Technologies was the largest shareholder of Career Education Corp. (NASDAQ:CECO), with a stake worth $67.7 million reported as of the end of March. Trailing Renaissance Technologies was D E Shaw, which amassed a stake valued at $23.9 million. SG Capital Management, Tenzing Global Investors, and Lonestar Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Seeing as Career Education Corp. (NASDAQ:CECO) has faced bearish sentiment from the entirety of the hedge funds we track, we can see that there is a sect of fund managers that slashed their entire stakes by the end of the third quarter. Intriguingly, Peter S. Park's Park West Asset Management dumped the biggest stake of the "upper crust" of funds followed by Insider Monkey, valued at about $4.3 million in stock, and Paul Marshall and Ian Wace's Marshall Wace LLP was right behind this move, as the fund said goodbye to about $0.8 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as Career Education Corp. (NASDAQ:CECO) but similarly valued. These stocks are Rambus Inc. (NASDAQ:RMBS), Xperi Corporation (NASDAQ:XPER), Brookline Bancorp, Inc. (NASDAQ:BRKL), and Electronics For Imaging, Inc. (NASDAQ:EFII). This group of stocks' market caps resemble CECO's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position RMBS,17,137582,4 XPER,23,119653,8 BRKL,9,52358,-1 EFII,15,140481,3 Average,16,112519,3.5 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16 hedge funds with bullish positions and the average amount invested in these stocks was $113 million. That figure was $180 million in CECO's case. Xperi Corporation (NASDAQ:XPER) is the most popular stock in this table. On the other hand Brookline Bancorp, Inc. (NASDAQ:BRKL) is the least popular one with only 9 bullish hedge fund positions. Career Education Corp. (NASDAQ:CECO) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Hedge funds were also right about betting on CECO as the stock returned 15.3% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.
Disclosure: None. This article was originally published at Insider Monkey.