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In this article we are going to use hedge fund sentiment as a tool and determine whether New Oriental Education & Technology Group Inc. (NYSE:EDU) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
New Oriental Education & Technology Group Inc. (NYSE:EDU) was in 39 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 50. EDU shareholders have witnessed a decrease in hedge fund interest of late. There were 45 hedge funds in our database with EDU positions at the end of the first quarter. Our calculations also showed that EDU isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).
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.
Chase Coleman of Tiger Global
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech 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 let's check out the recent hedge fund action encompassing New Oriental Education & Technology Group Inc. (NYSE:EDU).
Do Hedge Funds Think EDU Is A Good Stock To Buy Now?
At second quarter's end, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from one quarter earlier. On the other hand, there were a total of 39 hedge funds with a bullish position in EDU a year ago. So, let's find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Alkeon Capital Management held the most valuable stake in New Oriental Education & Technology Group Inc. (NYSE:EDU), which was worth $138.9 million at the end of the second quarter. On the second spot was Tiger Global Management LLC which amassed $75.5 million worth of shares. Hunt Lane Capital, Laurion Capital Management, and Fisher Asset Management 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 Hunt Lane Capital allocated the biggest weight to New Oriental Education & Technology Group Inc. (NYSE:EDU), around 11.17% of its 13F portfolio. Kylin Management is also relatively very bullish on the stock, dishing out 6.32 percent of its 13F equity portfolio to EDU.
Since New Oriental Education & Technology Group Inc. (NYSE:EDU) has faced falling interest from the entirety of the hedge funds we track, it's easy to see that there was a specific group of money managers that elected to cut their full holdings by the end of the second quarter. Interestingly, Daniel Sundheim's D1 Capital Partners dumped the largest stake of the 750 funds followed by Insider Monkey, totaling about $350.5 million in stock, and Rajiv Jain's GQG Partners was right behind this move, as the fund dropped about $319.8 million worth. These bearish behaviors are interesting, as aggregate hedge fund interest was cut by 6 funds by the end of the second quarter.
Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as New Oriental Education & Technology Group Inc. (NYSE:EDU) but similarly valued. These stocks are Avalara, Inc. (NYSE:AVLR), Icahn Enterprises LP (NASDAQ:IEP), Open Text Corporation (NASDAQ:OTEX), Korea Electric Power Corporation (NYSE:KEP), Evergy, Inc. (NYSE:EVRG), Campbell Soup Company (NYSE:CPB), and DENTSPLY SIRONA Inc. (NASDAQ:XRAY). This group of stocks' market caps match EDU's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position AVLR,29,1031140,-12 IEP,4,13111036,0 OTEX,14,300643,-2 KEP,4,18930,0 EVRG,21,1039354,-9 CPB,27,430218,-1 XRAY,35,1109745,9 Average,19.1,2434438,-2.1 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.1 hedge funds with bullish positions and the average amount invested in these stocks was $2434 million. That figure was $590 million in EDU's case. DENTSPLY SIRONA Inc. (NASDAQ:XRAY) is the most popular stock in this table. On the other hand Icahn Enterprises LP (NASDAQ:IEP) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks New Oriental Education & Technology Group Inc. (NYSE:EDU) is more popular among hedge funds. Our overall hedge fund sentiment score for EDU is 72.4. 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 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 21.8% in 2021 through October 11th and still beat the market by 4.4 percentage points. Unfortunately EDU wasn't nearly as popular as these 5 stocks and hedge funds that were betting on EDU were disappointed as the stock returned -72.6% since the end of the second quarter (through 10/11) 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 most of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.