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Should You Avoid Group 1 Automotive, Inc. (GPI)?

Asma UL Husna

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors' consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Group 1 Automotive, Inc. (NYSE:GPI).

Is Group 1 Automotive, Inc. (NYSE:GPI) a buy here? The best stock pickers are in a pessimistic mood. The number of bullish hedge fund positions were trimmed by 7 lately. Our calculations also showed that GPI 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

[caption id="attachment_339739" align="aligncenter" width="392"] Ricky Sandler of Eminence Capital[/caption]

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology's influence will go beyond online payments. So, we are checking out this futurist's moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we're going to take a look at the new hedge fund action encompassing Group 1 Automotive, Inc. (NYSE:GPI).

Hedge fund activity in Group 1 Automotive, Inc. (NYSE:GPI)

At the end of the first quarter, a total of 15 of the hedge funds tracked by Insider Monkey were long this stock, a change of -32% from the previous quarter. By comparison, 13 hedge funds held shares or bullish call options in GPI a year ago. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Eminence Capital, managed by Ricky Sandler, holds the largest position in Group 1 Automotive, Inc. (NYSE:GPI). Eminence Capital has a $69.8 million position in the stock, comprising 0.8% of its 13F portfolio. The second largest stake is held by Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, which holds a $11.2 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Some other professional money managers that are bullish comprise Paul Marshall and Ian Wace's Marshall Wace LLP, David Harding's Winton Capital Management and Israel Englander's Millennium Management. In terms of the portfolio weights assigned to each position Eminence Capital allocated the biggest weight to Group 1 Automotive, Inc. (NYSE:GPI), around 0.76% of its 13F portfolio. Factorial Partners is also relatively very bullish on the stock, setting aside 0.45 percent of its 13F equity portfolio to GPI.

Judging by the fact that Group 1 Automotive, Inc. (NYSE:GPI) has faced bearish sentiment from the aggregate hedge fund industry, it's easy to see that there was a specific group of fund managers that elected to cut their positions entirely last quarter. It's worth mentioning that Renaissance Technologies dumped the largest investment of the 750 funds tracked by Insider Monkey, comprising close to $5.6 million in stock, and Peter Muller's PDT Partners was right behind this move, as the fund said goodbye to about $2.3 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 7 funds last quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Group 1 Automotive, Inc. (NYSE:GPI) but similarly valued. These stocks are Bright Scholar Education Holdings Limited (NYSE:BEDU), Alexander & Baldwin Inc (NYSE:ALEX), Dycom Industries, Inc. (NYSE:DY), and Douglas Dynamics Inc (NYSE:PLOW). This group of stocks' market values are similar to GPI's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position BEDU,9,76688,1 ALEX,13,28698,-5 DY,17,82687,-1 PLOW,9,14986,-3 Average,12,50765,-2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 12 hedge funds with bullish positions and the average amount invested in these stocks was $51 million. That figure was $97 million in GPI's case. Dycom Industries, Inc. (NYSE:DY) is the most popular stock in this table. On the other hand Bright Scholar Education Holdings Limited (NYSE:BEDU) is the least popular one with only 9 bullish hedge fund positions. Group 1 Automotive, Inc. (NYSE:GPI) is not the most popular stock in this group but hedge fund interest is still above average. 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 13.3% in 2020 through June 25th but still beat the market by 16.8 percentage points. Hedge funds were also right about betting on GPI as the stock returned 32.6% in Q2 (through June 25th) 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.

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