Billionaire hedge fund managers such as Steve Cohen and Stan Druckenmiller can generate millions or even billions of dollars every year by pinning down high-potential small-cap stocks and pouring cash into these candidates. Small-cap stocks are overlooked by most investors, brokerage houses, and financial services hubs, while the unlimited research abilities of the big players within the hedge fund industry can easily identify the undervalued and high-potential stocks that reside the ignored corners of equity markets. There are numerous small-cap stocks that have turned out to be great winners, which is one of the main reasons the Insider Monkey team pays close attention to the hedge fund activity in relation to these stocks.
K12 Inc. (NYSE:LRN) was in 17 hedge funds’ portfolios at the end of September. LRN has experienced an increase in activity from the world’s largest hedge funds lately. There were 15 hedge funds in our database with LRN holdings at the end of the previous quarter. At the end of this article we will also compare LRN to other stocks including Newpark Resources Inc (NYSE:NR), Sabine Royalty Trust (NYSE:SBR), and Unifi, Inc. (NYSE:UFI) to get a better sense of its popularity.
At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.
Hedge fund activity in K12 Inc. (NYSE:LRN)
At Q3’s end, a total of 17 of the hedge funds tracked by Insider Monkey were bullish on this stock, a 13% gain from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LRN over the last 5 quarters, which shows rises in ownership over the past three quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Highland Capital Management, led by James Dondero, holds the most valuable position in K12 Inc. (NYSE:LRN). Highland Capital Management has a $32.8 million position in the stock, comprising 1% of its 13F portfolio. Sitting at the No. 2 spot is D E Shaw, founded by David E. Shaw, holding a $10.2 million position. Some other members of the smart money that hold long positions encompass Cliff Asness’ AQR Capital Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Chuck Royce’s Royce & Associates. We should note that none of these hedge funds are among our list of the 100 best performing hedge funds which is based on the performance of their 13F long positions in non-microcap stocks.
As one would reasonably expect, some big names have jumped into K12 Inc. (NYSE:LRN) headfirst. Royce & Associates, led by Chuck Royce, initiated the biggest position in K12 Inc. (NYSE:LRN). Royce & Associates had $3.5 million invested in the company at the end of the quarter. Neil Chriss’ Hutchin Hill Capital also made a $0.4 million investment in the stock during the quarter. The following funds were also among the new LRN investors: Joshua Packwood and Schuster Tanger’s Radix Partners, David Costen Haley’s HBK Investments, and Matthew Hulsizer’s PEAK6 Capital Management.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as K12 Inc. (NYSE:LRN) but similarly valued. These stocks are Newpark Resources Inc (NYSE:NR), Sabine Royalty Trust (NYSE:SBR), Unifi, Inc. (NYSE:UFI), and PennantPark Investment Corp. (NASDAQ:PNNT). All of these stocks’ market caps are similar to LRN’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
As you can see these stocks had an average of 8 hedge funds with bullish positions and the average amount invested in these stocks was $32 million. That figure was $65 million in LRN’s case. Newpark Resources Inc (NYSE:NR) is the most popular stock in this table. On the other hand PennantPark Investment Corp. (NASDAQ:PNNT) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks K12 Inc. (NYSE:LRN) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.