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Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards TAL Education Group (NYSE:TAL).
Is TAL stock a buy? TAL Education Group (NYSE:TAL) was in 29 hedge funds' portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 41. TAL investors should be aware of a decrease in hedge fund sentiment lately. There were 41 hedge funds in our database with TAL positions at the end of the third quarter. Our calculations also showed that TAL isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 124 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 13% through November 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 leave no stone unturned when looking for the next great investment idea. For example, we heard that billionaire Peter Thiel is backing this psychedelic-drug startup. So, we are taking a closer look at this space. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x 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. With all of this in mind let's check out the key hedge fund action surrounding TAL Education Group (NYSE:TAL).
Do Hedge Funds Think TAL Is A Good Stock To Buy Now?
At Q4's end, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from the third quarter of 2020. The graph below displays the number of hedge funds with bullish position in TAL over the last 22 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
The largest stake in TAL Education Group (NYSE:TAL) was held by Tiger Global Management LLC, which reported holding $412.1 million worth of stock at the end of December. It was followed by Yiheng Capital with a $310.6 million position. Other investors bullish on the company included Hillhouse Capital Management, Serenity Capital, and GQG Partners. In terms of the portfolio weights assigned to each position Serenity Capital allocated the biggest weight to TAL Education Group (NYSE:TAL), around 36.21% of its 13F portfolio. Panview Capital is also relatively very bullish on the stock, designating 20.39 percent of its 13F equity portfolio to TAL.
Judging by the fact that TAL Education Group (NYSE:TAL) has witnessed falling interest from the aggregate hedge fund industry, we can see that there lies a certain "tier" of money managers that elected to cut their positions entirely heading into Q1. At the top of the heap, Glen Kacher's Light Street Capital cut the largest position of the "upper crust" of funds followed by Insider Monkey, worth close to $40.5 million in stock, and Richard Driehaus's Driehaus Capital was right behind this move, as the fund sold off about $34.1 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 12 funds heading into Q1.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as TAL Education Group (NYSE:TAL) but similarly valued. We will take a look at Marriott International Inc (NASDAQ:MAR), Enterprise Products Partners L.P. (NYSE:EPD), ConocoPhillips (NYSE:COP), General Dynamics Corporation (NYSE:GD), IDEXX Laboratories, Inc. (NASDAQ:IDXX), Constellation Brands, Inc. (NYSE:STZ), and Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG). This group of stocks' market valuations are similar to TAL's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MAR,58,3421401,2 EPD,30,316886,0 COP,49,687393,4 GD,40,4955250,3 IDXX,46,2697821,5 STZ,58,1768371,5 SMFG,10,92749,2 Average,41.6,1991410,3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 41.6 hedge funds with bullish positions and the average amount invested in these stocks was $1991 million. That figure was $1970 million in TAL's case. Marriott International Inc (NASDAQ:MAR) is the most popular stock in this table. On the other hand Sumitomo Mitsui Financial Grp, Inc. (NYSE:SMFG) is the least popular one with only 10 bullish hedge fund positions. TAL Education Group (NYSE:TAL) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for TAL is 34. 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 negative signal and we'd rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.2% in 2021 through April 12th and surpassed the market again by 1.5 percentage points. Unfortunately TAL wasn't nearly as popular as these 30 stocks (hedge fund sentiment was quite bearish); TAL investors were disappointed as the stock returned -18.2% since the end of December (through 4/12) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
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Disclosure: None. This article was originally published at Insider Monkey.