Did Hedge Funds Make The Right Call On K12 Inc. (LRN) ?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded K12 Inc. (NYSE:LRN) and determine whether the smart money was really smart about this stock.

Is K12 Inc. (NYSE:LRN) worth your attention right now? The smart money was buying. The number of bullish hedge fund positions went up by 5 in recent months. Our calculations also showed that LRN isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

To most traders, hedge funds are perceived as slow, outdated investment tools of the past. While there are greater than 8000 funds in operation today, Our researchers choose to focus on the bigwigs of this club, around 850 funds. These hedge fund managers command the majority of all hedge funds’ total asset base, and by observing their inimitable stock picks, Insider Monkey has discovered various investment strategies that have historically defeated the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so we are checking out this under-the-radar lithium stock. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind we’re going to view the recent hedge fund action regarding K12 Inc. (NYSE:LRN).

How are hedge funds trading K12 Inc. (NYSE:LRN)?

Heading into the second quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey were long this stock, a change of 33% from the previous quarter. On the other hand, there were a total of 24 hedge funds with a bullish position in LRN a year ago. With hedge funds’ sentiment swirling, there exists a select group of notable hedge fund managers who were boosting their stakes substantially (or already accumulated large positions).

Is LRN A Good Stock To Buy?

Among these funds, Renaissance Technologies held the most valuable stake in K12 Inc. (NYSE:LRN), which was worth $33.7 million at the end of the third quarter. On the second spot was D E Shaw which amassed $22.1 million worth of shares. Portolan Capital Management, Intrinsic Edge Capital, and Arrowstreet Capital 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 Invenomic Capital Management allocated the biggest weight to K12 Inc. (NYSE:LRN), around 3.4% of its 13F portfolio. Portolan Capital Management is also relatively very bullish on the stock, designating 1.41 percent of its 13F equity portfolio to LRN.

Consequently, key money managers were leading the bulls’ herd. Portolan Capital Management, managed by George McCabe, established the biggest position in K12 Inc. (NYSE:LRN). Portolan Capital Management had $9.4 million invested in the company at the end of the quarter. Mark Coe’s Intrinsic Edge Capital also made a $8.2 million investment in the stock during the quarter. The other funds with brand new LRN positions are Ali Motamed’s Invenomic Capital Management, Anand Parekh’s Alyeska Investment Group, and Dmitry Balyasny’s Balyasny Asset Management.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as K12 Inc. (NYSE:LRN) but similarly valued. These stocks are Unisys Corporation (NYSE:UIS), Yunji Inc. (NASDAQ:YJ), Tactile Systems Technology, Inc. (NASDAQ:TCMD), and Daqo New Energy Corp (NYSE:DQ). This group of stocks’ market values are similar to LRN’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
UIS 16 74553 -2
YJ 4 3255 -2
TCMD 13 38706 1
DQ 15 43162 1
Average 12 39919 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $40 million. That figure was $107 million in LRN’s case. Unisys Corporation (NYSE:UIS) is the most popular stock in this table. On the other hand Yunji Inc. (NASDAQ:YJ) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks K12 Inc. (NYSE:LRN) is more popular among hedge funds. 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 returned 18.6% in 2020 through July 27th but still managed to beat the market by 17.1 percentage points. Hedge funds were also right about betting on LRN as the stock returned 148.1% since Q1 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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