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TAL Education Group (TAL) Fell Out Of Favor With Hedge Funds

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Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about TAL Education Group (NYSE:TAL) in this article.

Is TAL Education Group (NYSE:TAL) a safe stock to buy now? Investors who are in the know were cutting their exposure. The number of bullish hedge fund positions decreased by 11 in recent months. TAL Education Group (NYSE:TAL) was in 27 hedge funds' portfolios at the end of June. The all time high for this statistic is 41. Our calculations also showed that TAL isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings). There were 38 hedge funds in our database with TAL positions at the end of the first quarter.

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 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Kerr Neilson of Platinum Asset Management

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 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. 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 homepage. Keeping this in mind we're going to view the latest hedge fund action regarding TAL Education Group (NYSE:TAL).

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

At the end of the second quarter, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -29% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards TAL over the last 24 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is TAL A Good Stock To Buy?
Is TAL A Good Stock To Buy?

More specifically, Yiheng Capital was the largest shareholder of TAL Education Group (NYSE:TAL), with a stake worth $145.8 million reported as of the end of June. Trailing Yiheng Capital was Tiger Global Management LLC, which amassed a stake valued at $57.6 million. D E Shaw, Anatole Investment Management, and Citadel Investment Group 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 Yiheng Capital allocated the biggest weight to TAL Education Group (NYSE:TAL), around 5.87% of its 13F portfolio. Anatole Investment Management is also relatively very bullish on the stock, setting aside 4.38 percent of its 13F equity portfolio to TAL.

Due to the fact that TAL Education Group (NYSE:TAL) has faced declining sentiment from the aggregate hedge fund industry, we can see that there lies a certain "tier" of hedge funds that decided to sell off their positions entirely by the end of the second quarter. Interestingly, Wang Chan's Serenity Capital sold off the biggest position of the 750 funds monitored by Insider Monkey, totaling close to $161.2 million in stock, and Rajiv Jain's GQG Partners was right behind this move, as the fund sold off about $127.3 million worth. These transactions are important to note, as total hedge fund interest dropped by 11 funds by the end of the second quarter.

Let's also examine hedge fund activity in other stocks similar to TAL Education Group (NYSE:TAL). We will take a look at WPP Plc (NASDAQ:WPP), PPD, Inc. (NASDAQ:PPD), Franklin Resources, Inc. (NYSE:BEN), Quest Diagnostics Incorporated (NYSE:DGX), Eastman Chemical Company (NYSE:EMN), Companhia Paranaense de Energia (NYSE:ELP), and NortonLifeLock Inc. (NASDAQ:NLOK). This group of stocks' market valuations resemble TAL's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WPP,6,23931,1 PPD,37,1910889,8 BEN,30,205166,-1 DGX,31,376501,-3 EMN,27,156403,0 ELP,13,43466,8 NLOK,36,1340848,4 Average,25.7,579601,2.4 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.7 hedge funds with bullish positions and the average amount invested in these stocks was $580 million. That figure was $607 million in TAL's case. PPD, Inc. (NASDAQ:PPD) is the most popular stock in this table. On the other hand WPP Plc (NASDAQ:WPP) is the least popular one with only 6 bullish hedge fund positions. TAL Education Group (NYSE:TAL) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for TAL is 47.6. 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 24.9% in 2021 through October 15th and beat the market again by 4.5 percentage points. Unfortunately TAL wasn't nearly as popular as these 5 stocks and hedge funds that were betting on TAL were disappointed as the stock returned -80.7% since the end of June (through 10/15) 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 many of these stocks already outperformed the market since 2019.

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