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Is Graham Holdings Co (GHC) Going to Burn These Hedge Funds?

In this article we will check out the progression of hedge fund sentiment towards Graham Holdings Co (NYSE:GHC) and determine whether it is a good investment right now. We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also employ numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is Graham Holdings Co (NYSE:GHC) a buy right now? Hedge funds are getting more bullish. The number of long hedge fund positions increased by 3 lately. Our calculations also showed that GHC 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.

Today there are a large number of gauges market participants employ to assess their holdings. A duo of the most under-the-radar gauges are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the top picks of the elite fund managers can beat the broader indices by a significant amount (see the details here).

Mason Hawkins of Southeastern Asset Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. 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. With all of this in mind we’re going to analyze the recent hedge fund action encompassing Graham Holdings Co (NYSE:GHC).

What have hedge funds been doing with Graham Holdings Co (NYSE:GHC)?

At the end of the first quarter, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 17% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in GHC over the last 18 quarters. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

The largest stake in Graham Holdings Co (NYSE:GHC) was held by Southeastern Asset Management, which reported holding $127.1 million worth of stock at the end of September. It was followed by Wallace Capital Management with a $49.9 million position. Other investors bullish on the company included AQR Capital Management, Marshall Wace LLP, and Renaissance Technologies. In terms of the portfolio weights assigned to each position Wallace Capital Management allocated the biggest weight to Graham Holdings Co (NYSE:GHC), around 9.57% of its 13F portfolio. Madison Avenue Partners is also relatively very bullish on the stock, earmarking 4.35 percent of its 13F equity portfolio to GHC.

Now, key hedge funds were breaking ground themselves. Marshall Wace LLP, managed by Paul Marshall and Ian Wace, assembled the largest position in Graham Holdings Co (NYSE:GHC). Marshall Wace LLP had $10.4 million invested in the company at the end of the quarter. Eli Samaha’s Madison Avenue Partners also made a $8.8 million investment in the stock during the quarter. The other funds with new positions in the stock are Noah Levy and Eugene Dozortsev’s Newtyn Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, and Paul Tudor Jones’s Tudor Investment Corp.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Graham Holdings Co (NYSE:GHC) but similarly valued. We will take a look at SmileDirectClub, Inc. (NASDAQ:SDC), Dorman Products Inc. (NASDAQ:DORM), ExlService Holdings, Inc. (NASDAQ:EXLS), and Progyny, Inc. (NASDAQ:PGNY). This group of stocks’ market valuations are closest to GHC’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SDC 20 65952 0
DORM 14 40202 1
EXLS 15 46684 -3
PGNY 10 13623 2
Average 14.75 41615 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $42 million. That figure was $284 million in GHC’s case. SmileDirectClub, Inc. (NASDAQ:SDC) is the most popular stock in this table. On the other hand Progyny, Inc. (NASDAQ:PGNY) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Graham Holdings Co (NYSE:GHC) 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 gained 12.2% in 2020 through June 17th and still beat the market by 14.8 percentage points. Unfortunately GHC wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on GHC were disappointed as the stock returned 0.1% during the second quarter (through June 17th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.

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