Author: Don Obrien

Here’s Why You Should Definitely Invest in Jefferies Financial (JEF)

GoodHaven Funds, an investment management firm, published its second-quarter 2021 investor letter – a copy of which can be downloaded here. The fund returned 24.95% for the first half of 2021, while its benchmarks, the S&P 500 Index advanced 16.94%, the Wilshire 5000 Total Market Index returned 16.19%, the HFRI Fundamental Growth Index returned 17.61%, the HFRI Fundamental Value Index had a 22.68% gain, and the CS Hedge Fund Index delivered a 10.72% return for the same period. You can take a look at the fund’s top 5 holdings to have an idea about their top bets for 2021.

In the Q2 2021 investor letter of GoodHaven Funds, the fund mentioned Jefferies Financial Group Inc. (NYSE: JEF) and discussed its stance on the firm. Jefferies Financial Group Inc. is a New York, New York-based financial services company with a $9.2 billion market capitalization. JEF delivered a 51.59% return since the beginning of the year, while its 12-month returns are up by 101.79%. The stock closed at $37.29 per share on September 24, 2021.

Here is what GoodHaven Funds has to say about Jefferies Financial Group Inc. in its Q2 2021 investor letter:

Jefferies Financial was our next biggest dollar gainer in the period, yet also remains undervalued in our opinion. We are running out of accolades to describe the string of great results at Jefferies. In their just reported six-month period, the core business earned over 35% return on tangible equity (ROTE) and more than doubled pre-tax income versus the prior year’s six months. Book value and tangible book value/share are now $40.77 and $30.29 respectively. Students of capital allocation should study Rich Handler. Over the last three years, Jefferies has repurchased 123 million shares for $2.6 billion at an average price of $21.04/share. Astute repurchases materially benefit remaining owners. While it’s reasonable to expect some normalization of Jefferies recent great results, Jefferies has gained market share in its core business and has a culture adept at finding new niches to earn good returns, while helping clients, and when existing niches become less profitable. Even if a more normalized ROTE is in store, we think that level will be materially higher than it has been in the recent past.”

Based on our calculations, Jefferies Financial Group Inc. (NYSE: JEF) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. JEF was in 29 hedge fund portfolios at the end of the first half of 2021, compared to 38 funds in the previous quarter. Jefferies Financial Group Inc. (NYSE: JEF) delivered a 16.68% return in the past 3 months.

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 115 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.

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest-growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage.

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

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Oliver Bolt

Oliver Bolt

On Key

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