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How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Laureate Education, Inc. (NASDAQ:LAUR) and determine whether hedge funds had an edge regarding this stock.
Laureate Education, Inc. (NASDAQ:LAUR) was in 31 hedge funds' portfolios at the end of June. The all time high for this statistics is 34. LAUR investors should pay attention to an increase in support from the world's most elite money managers recently. There were 25 hedge funds in our database with LAUR holdings at the end of March. Our calculations also showed that LAUR 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).
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.
Dmitry Balyasny of Balyasny Asset Management
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. 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. Now we're going to review the fresh hedge fund action regarding Laureate Education, Inc. (NASDAQ:LAUR).
What have hedge funds been doing with Laureate Education, Inc. (NASDAQ:LAUR)?
At Q2's end, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of 24% from the first quarter of 2020. By comparison, 23 hedge funds held shares or bullish call options in LAUR a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of notable hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).
The largest stake in Laureate Education, Inc. (NASDAQ:LAUR) was held by Park West Asset Management, which reported holding $45.7 million worth of stock at the end of September. It was followed by Nut Tree Capital with a $22.9 million position. Other investors bullish on the company included Maple Rock Capital, Alyeska Investment Group, and Redwood Capital Management. In terms of the portfolio weights assigned to each position Nut Tree Capital allocated the biggest weight to Laureate Education, Inc. (NASDAQ:LAUR), around 7.23% of its 13F portfolio. Maple Rock Capital is also relatively very bullish on the stock, setting aside 3.95 percent of its 13F equity portfolio to LAUR.
As industrywide interest jumped, some big names were leading the bulls' herd. Redwood Capital Management, managed by Jonathan Kolatch, assembled the most outsized position in Laureate Education, Inc. (NASDAQ:LAUR). Redwood Capital Management had $10.8 million invested in the company at the end of the quarter. David Rosen's Rubric Capital Management also initiated a $4 million position during the quarter. The following funds were also among the new LAUR investors: Peter Muller's PDT Partners, Dmitry Balyasny's Balyasny Asset Management, and Benjamin A. Smith's Laurion Capital Management.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as Laureate Education, Inc. (NASDAQ:LAUR) but similarly valued. We will take a look at Cathay General Bancorp (NASDAQ:CATY), Cabot Corporation (NYSE:CBT), Alcoa Corporation (NYSE:AA), First Majestic Silver Corp (NYSE:AG), The Goodyear Tire & Rubber Company (NASDAQ:GT), Palomar Holdings, Inc. (NASDAQ:PLMR), and Guangshen Railway Co. Ltd (NYSE:GSH). This group of stocks' market caps are closest to LAUR's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CATY,11,31944,-4 CBT,18,51733,-5 AA,33,402299,0 AG,14,106404,1 GT,21,184571,-5 PLMR,15,76145,8 GSH,1,3274,-1 Average,16.1,122339,-0.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.1 hedge funds with bullish positions and the average amount invested in these stocks was $122 million. That figure was $161 million in LAUR's case. Alcoa Corporation (NYSE:AA) is the most popular stock in this table. On the other hand Guangshen Railway Co. Ltd (NYSE:GSH) is the least popular one with only 1 bullish hedge fund positions. Laureate Education, Inc. (NASDAQ:LAUR) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LAUR is 84.2. 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 23.8% in 2020 through September 14th and still beat the market by 17.6 percentage points. Hedge funds were also right about betting on LAUR as the stock returned 31.8% during Q3 (through September 14th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.