In this article we are going to use hedge fund sentiment as a tool and determine whether Navient Corp (NASDAQ:NAVI) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds' picks don't beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.
Is NAVI stock a buy? Navient Corp (NASDAQ:NAVI) shareholders have witnessed an increase in enthusiasm from smart money of late. Navient Corp (NASDAQ:NAVI) was in 28 hedge funds' portfolios at the end of December. The all time high for this statistic is 38. Our calculations also showed that NAVI isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings).
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 124 percentage points since March 2017 (see the details here).
Leon Cooperman of Omega Advisors
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, auto parts business is a recession resistant business, so we are taking a closer look at this discount auto parts stock that is growing at a 196% annualized rate. We go through lists like the 15 best micro-cap stocks to buy now to identify the next stock with 10x upside potential. 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 we're going to analyze the recent hedge fund action regarding Navient Corp (NASDAQ:NAVI).
Do Hedge Funds Think NAVI Is A Good Stock To Buy Now?
At the end of the fourth quarter, a total of 28 of the hedge funds tracked by Insider Monkey were long this stock, a change of 27% from the third quarter of 2020. By comparison, 38 hedge funds held shares or bullish call options in NAVI a year ago. With hedge funds' sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).
More specifically, Arrowstreet Capital was the largest shareholder of Navient Corp (NASDAQ:NAVI), with a stake worth $34.8 million reported as of the end of December. Trailing Arrowstreet Capital was HG Vora Capital Management, which amassed a stake valued at $34.4 million. Omega Advisors, D E Shaw, and Portolan Capital Management 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 HG Vora Capital Management allocated the biggest weight to Navient Corp (NASDAQ:NAVI), around 2.66% of its 13F portfolio. Omega Advisors is also relatively very bullish on the stock, designating 2.34 percent of its 13F equity portfolio to NAVI.
As aggregate interest increased, key hedge funds have jumped into Navient Corp (NASDAQ:NAVI) headfirst. HG Vora Capital Management, managed by Parag Vora, established the most valuable position in Navient Corp (NASDAQ:NAVI). HG Vora Capital Management had $34.4 million invested in the company at the end of the quarter. Donald Sussman's Paloma Partners also made a $0.6 million investment in the stock during the quarter. The following funds were also among the new NAVI investors: Jonathan Soros's JS Capital, Michael Gelband's ExodusPoint Capital, and Thomas Bailard's Bailard Inc.
Let's now review hedge fund activity in other stocks similar to Navient Corp (NASDAQ:NAVI). We will take a look at HudBay Minerals Inc (NYSE:HBM), eHealth, Inc. (NASDAQ:EHTH), Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD), Mersana Therapeutics, Inc. (NASDAQ:MRSN), First Midwest Bancorp Inc (NASDAQ:FMBI), EnLink Midstream LLC (NYSE:ENLC), and PRA Group, Inc. (NASDAQ:PRAA). This group of stocks' market caps match NAVI's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HBM,19,432521,6 EHTH,24,276972,-11 IRWD,26,423969,2 MRSN,30,618267,2 FMBI,16,82001,-1 ENLC,8,28595,-1 PRAA,13,40438,-6 Average,19.4,271823,-1.3 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 19.4 hedge funds with bullish positions and the average amount invested in these stocks was $272 million. That figure was $218 million in NAVI's case. Mersana Therapeutics, Inc. (NASDAQ:MRSN) is the most popular stock in this table. On the other hand EnLink Midstream LLC (NYSE:ENLC) is the least popular one with only 8 bullish hedge fund positions. Navient Corp (NASDAQ:NAVI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for NAVI is 77.6. 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. Our calculations showed that top 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.3% in 2021 through April 19th and still beat the market by 0.9 percentage points. Hedge funds were also right about betting on NAVI as the stock returned 55% since the end of Q4 (through 4/19) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.