In this article we will take a look at whether hedge funds think Perdoceo Education Corporation (NASDAQ:PRDO) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.
Is PRDO a good stock to buy now? Perdoceo Education Corporation (NASDAQ:PRDO) investors should be aware of a decrease in activity from the world’s largest hedge funds of late. Perdoceo Education Corporation (NASDAQ:PRDO) was in 17 hedge funds’ portfolios at the end of the third quarter of 2020. The all time high for this statistic is 24. Our calculations also showed that PRDO isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.
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 66 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.
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Keeping this in mind let’s analyze the latest hedge fund action regarding Perdoceo Education Corporation (NASDAQ:PRDO).
Do Hedge Funds Think PRDO Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2020, a total of 17 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -11% from one quarter earlier. By comparison, 24 hedge funds held shares or bullish call options in PRDO a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were upping their holdings meaningfully (or already accumulated large positions).
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Renaissance Technologies has the most valuable position in Perdoceo Education Corporation (NASDAQ:PRDO), worth close to $67.9 million, accounting for 0.1% of its total 13F portfolio. Sitting at the No. 2 spot is D E Shaw, led by D. E. Shaw, holding a $21.6 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedge funds and institutional investors with similar optimism encompass Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Paul Marshall and Ian Wace’s Marshall Wace LLP and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Algert Coldiron Investors allocated the biggest weight to Perdoceo Education Corporation (NASDAQ:PRDO), around 0.14% of its 13F portfolio. AlphaCrest Capital Management is also relatively very bullish on the stock, earmarking 0.11 percent of its 13F equity portfolio to PRDO.
Due to the fact that Perdoceo Education Corporation (NASDAQ:PRDO) has faced a decline in interest from the smart money, it’s safe to say that there were a few fund managers that decided to sell off their full holdings in the third quarter. At the top of the heap, Mark Coe’s Intrinsic Edge Capital dropped the largest position of all the hedgies watched by Insider Monkey, totaling about $4.7 million in stock. Matthew Hulsizer’s fund, PEAK6 Capital Management, also dumped its stock, about $0.9 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 2 funds in the third quarter.
Let’s also examine hedge fund activity in other stocks similar to Perdoceo Education Corporation (NASDAQ:PRDO). These stocks are OneSpan Inc. (NASDAQ:OSPN), Veritex Holdings Inc (NASDAQ:VBTX), ProAssurance Corporation (NYSE:PRA), Vericel Corp (NASDAQ:VCEL), Morphic Holding, Inc. (NASDAQ:MORF), Cango Inc. (NYSE:CANG), and Diversified Healthcare Trust (NASDAQ:DHC). This group of stocks’ market caps are similar to PRDO’s market cap.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
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As you can see these stocks had an average of 11.3 hedge funds with bullish positions and the average amount invested in these stocks was $78 million. That figure was $129 million in PRDO’s case. Vericel Corp (NASDAQ:VCEL) is the most popular stock in this table. On the other hand Cango Inc. (NYSE:CANG) is the least popular one with only 2 bullish hedge fund positions. Perdoceo Education Corporation (NASDAQ:PRDO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for PRDO is 65.9. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 percentage points. These stocks gained 30.7% in 2020 through December 14th and beat the market again by 15.8 percentage points. Unfortunately PRDO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on PRDO were disappointed as the stock returned 2.3% since the end of September (through 12/14) 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 many of these stocks already outperformed the market so far this year.
Disclosure: None. This article was originally published at Insider Monkey.