Is Credit Acceptance Corp. (NASDAQ:CACC) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.
Credit Acceptance Corp. (NASDAQ:CACC) has experienced a decrease in activity from the world's largest hedge funds of late. Our calculations also showed that CACC isn't among the 30 most popular stocks among hedge funds (see the video below). Video: Click the image to 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 market by 40 percentage points since May 2014 through May 30, 2019 (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 our short portfolio.
Unlike this former hedge fund manager who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. Let's review the recent hedge fund action surrounding Credit Acceptance Corp. (NASDAQ:CACC).
What does smart money think about Credit Acceptance Corp. (NASDAQ:CACC)?
At the end of the second quarter, a total of 27 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the previous quarter. By comparison, 16 hedge funds held shares or bullish call options in CACC a year ago. With hedgies' positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).
More specifically, BloombergSen was the largest shareholder of Credit Acceptance Corp. (NASDAQ:CACC), with a stake worth $244.8 million reported as of the end of March. Trailing BloombergSen was Abrams Bison Investments, which amassed a stake valued at $195.2 million. Gobi Capital, Cantillon Capital Management, and Goodnow Investment Group were also very fond of the stock, giving the stock large weights in their portfolios.
Since Credit Acceptance Corp. (NASDAQ:CACC) has witnessed declining sentiment from the entirety of the hedge funds we track, it's easy to see that there were a few money managers that decided to sell off their full holdings heading into Q3. At the top of the heap, Eric F. Billings's Billings Capital Management dropped the biggest position of all the hedgies watched by Insider Monkey, comprising about $25.1 million in stock. Michael Platt and William Reeves's fund, BlueCrest Capital Mgmt., also cut its stock, about $1.5 million worth. These transactions are interesting, as total hedge fund interest fell by 1 funds heading into Q3.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Credit Acceptance Corp. (NASDAQ:CACC) but similarly valued. We will take a look at SAGE Therapeutics Inc (NASDAQ:SAGE), West Pharmaceutical Services Inc. (NYSE:WST), Iron Mountain Incorporated (NYSE:IRM), and Kirkland Lake Gold Ltd. (NYSE:KL). This group of stocks' market valuations are similar to CACC's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SAGE,25,458199,-3 WST,24,318338,3 IRM,14,39316,-4 KL,21,346566,-4 Average,21,290605,-2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $291 million. That figure was $1104 million in CACC's case. SAGE Therapeutics Inc (NASDAQ:SAGE) is the most popular stock in this table. On the other hand Iron Mountain Incorporated (NYSE:IRM) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks Credit Acceptance Corp. (NASDAQ:CACC) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Unfortunately CACC wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CACC were disappointed as the stock returned -4.7% during the third quarter 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 in Q3.
Disclosure: None. This article was originally published at Insider Monkey.