We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 835 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is Navient Corp (NASDAQ:NAVI), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
Is Navient Corp (NASDAQ:NAVI) a great stock to buy now? The best stock pickers are getting more optimistic. The number of bullish hedge fund positions increased by 5 lately. Our calculations also showed that NAVI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to review the key hedge fund action encompassing Navient Corp (NASDAQ:NAVI).
How are hedge funds trading Navient Corp (NASDAQ:NAVI)?
At the end of the fourth quarter, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of 15% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards NAVI over the last 18 quarters. With the smart money’s capital changing hands, there exists a select group of noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
The largest stake in Navient Corp (NASDAQ:NAVI) was held by Canyon Capital Advisors, which reported holding $278.3 million worth of stock at the end of September. It was followed by Arrowstreet Capital with a $56.4 million position. Other investors bullish on the company included D E Shaw, Omega Advisors, and Millennium Management. In terms of the portfolio weights assigned to each position Canyon Capital Advisors allocated the biggest weight to Navient Corp (NASDAQ:NAVI), around 6.49% of its 13F portfolio. Omega Advisors is also relatively very bullish on the stock, dishing out 1.6 percent of its 13F equity portfolio to NAVI.
Now, some big names have jumped into Navient Corp (NASDAQ:NAVI) headfirst. Chiron Investment Management, managed by Ryan Caldwell, assembled the biggest position in Navient Corp (NASDAQ:NAVI). Chiron Investment Management had $10.6 million invested in the company at the end of the quarter. Michael Kharitonov and Jon David McAuliffe’s Voleon Capital also initiated a $1.7 million position during the quarter. The other funds with new positions in the stock are David Harding’s Winton Capital Management, Benjamin A. Smith’s Laurion Capital Management, and Bruce Kovner’s Caxton Associates LP.
Let’s also examine hedge fund activity in other stocks similar to Navient Corp (NASDAQ:NAVI). These stocks are CVB Financial Corp. (NASDAQ:CVBF), Cantel Medical Corp. (NYSE:CMD), YETI Holdings, Inc. (NYSE:YETI), and Teradata Corporation (NYSE:TDC). This group of stocks’ market values are similar to NAVI’s market value.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 17.5 hedge funds with bullish positions and the average amount invested in these stocks was $134 million. That figure was $513 million in NAVI’s case. Teradata Corporation (NYSE:TDC) is the most popular stock in this table. On the other hand Cantel Medical Corp. (NYSE:CMD) is the least popular one with only 11 bullish hedge fund positions. Compared to these stocks Navient Corp (NASDAQ:NAVI) is more popular among hedge funds. 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. These stocks lost 17.4% in 2020 through March 25th and still beat the market by 5.5 percentage points. Unfortunately NAVI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on NAVI were disappointed as the stock returned -40.7% during the first two and a half months of 2020 (through March 25th) and underperformed 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 most of these stocks already outperformed the market in Q1.
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.