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Hedge Funds Are Learning To Love K12 Inc. (LRN)

In this article you are going to find out whether hedge funds think K12 Inc. (NYSE:LRN) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

K12 Inc. (NYSE:LRN) has seen an increase in enthusiasm from smart money recently. 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.

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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Bruce Kovner, Caxton Associates LP

Bruce Kovner of Caxton Associates LP

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 take a look at lists like the 10 most profitable companies in the world to identify the compounders that are likely to deliver double digit returns. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to take a peek at the latest hedge fund action regarding K12 Inc. (NYSE:LRN).

What have hedge funds been doing with K12 Inc. (NYSE:LRN)?

Heading into the second quarter of 2020, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from one quarter earlier. By comparison, 24 hedge funds held shares or bullish call options in LRN 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.

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, dishing out 1.41 percent of its 13F equity portfolio to LRN.

Now, specific money managers were breaking ground themselves. Portolan Capital Management, managed by George McCabe, initiated 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 new positions in the stock 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 caps are closest to LRN’s market cap.

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 12.2% in 2020 through June 17th but still managed to beat the market by 14.8 percentage points. Hedge funds were also right about betting on LRN as the stock returned 30.3% so far in Q2 (through June 17th) 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.