Hedge Fund Consensus Stocks vs. ITT Educational Services, Inc. (ESI) In 2019

2018’s fourth quarter was a rough one for investors and many hedge funds, which were naturally unable to overcome the big dip in the broad market, as the S&P 500 fell by about 4.8% during 2018 and average hedge fund losing about 1%. The Russell 2000, composed of smaller companies, performed even worse, trailing the S&P by more than 6 percentage points, as investors fled less-known quantities for safe havens. Luckily hedge funds were shifting their holdings into large-cap stocks. The 20 most popular hedge fund stocks actually generated an average return of 41.3% in 2019 and outperformed the S&P 500 ETF by more than 10 percentage points. In this article we will study how hedge fund sentiment towards ITT Educational Services, Inc. (NYSE:ESI) changed during the third quarter and how the stock performed in comparison to hedge fund consensus stocks.

ITT Educational Services, Inc. (NYSE:ESI) was in 26 hedge funds’ portfolios at the end of the third quarter of 2019. ESI investors should pay attention to a decrease in hedge fund sentiment recently. There were 27 hedge funds in our database with ESI holdings at the end of the previous quarter. Our calculations also showed that ESI isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video at the end of this article for Q2 rankings).

In the eyes of most stock holders, hedge funds are viewed as underperforming, old financial tools of the past. While there are over 8000 funds in operation at the moment, Our experts choose to focus on the aristocrats of this club, about 750 funds. These money managers control the majority of the smart money’s total capital, and by monitoring their inimitable stock picks, Insider Monkey has found a number of investment strategies that have historically outrun the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy outperformed the S&P 500 short ETFs by around 20 percentage points per year since its inception in May 2014. Our portfolio of short stocks lost 27.8% since February 2017 (through November 21st) even though the market was up more than 39% during the same period. We just shared a list of 7 short targets in our latest quarterly update .


Larry Robbins of Glenview Capital

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. This December, we recommended Adams Energy as a one-way bet based on an under-the-radar fund manager’s investor letter and the stock is still extremely cheap despite already gaining 20 percent. Keeping this in mind we’re going to review the recent hedge fund action encompassing ITT Educational Services, Inc. (NYSE:ESI).

What have hedge funds been doing with ITT Educational Services, Inc. (NYSE:ESI)?

At the end of the third quarter, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from one quarter earlier. By comparison, 24 hedge funds held shares or bullish call options in ESI a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is ESI A Good Stock To Buy?

Among these funds, Bares Capital Management held the most valuable stake in ITT Educational Services, Inc. (NYSE:ESI), which was worth $127.3 million at the end of the third quarter. On the second spot was Glenview Capital which amassed $119 million worth of shares. Elliott Management, Gates Capital Management, and Scoggin 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 Scoggin allocated the biggest weight to ITT Educational Services, Inc. (NYSE:ESI), around 8.47% of its 13F portfolio. Gates Capital Management is also relatively very bullish on the stock, designating 4.35 percent of its 13F equity portfolio to ESI.

Judging by the fact that ITT Educational Services, Inc. (NYSE:ESI) has experienced bearish sentiment from the smart money, we can see that there was a specific group of funds that elected to cut their entire stakes by the end of the third quarter. It’s worth mentioning that Andrew Feldstein and Stephen Siderow’s Blue Mountain Capital cut the biggest stake of the 750 funds followed by Insider Monkey, totaling close to $36.3 million in stock, and Ian Simm’s Impax Asset Management was right behind this move, as the fund dumped about $6.2 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 1 funds by the end of the third quarter.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as ITT Educational Services, Inc. (NYSE:ESI) but similarly valued. We will take a look at Wright Medical Group N.V. (NASDAQ:WMGI), Sunoco LP (NYSE:SUN), Arco Platform Limited (NASDAQ:ARCE), and Vermilion Energy Inc (NYSE:VET). This group of stocks’ market caps are closest to ESI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WMGI 35 705939 1
SUN 3 6682 -3
ARCE 12 60723 3
VET 10 46500 3
Average 15 204961 1

View table here if you experience formatting issues.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $205 million. That figure was $605 million in ESI’s case. Wright Medical Group N.V. (NASDAQ:WMGI) is the most popular stock in this table. On the other hand Sunoco LP (NYSE:SUN) is the least popular one with only 3 bullish hedge fund positions. ITT Educational Services, Inc. (NYSE:ESI) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. Unfortunately ESI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ESI were disappointed as the stock returned 13.1% in 2019 and trailed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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