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Should I Buy O’Reilly Automotive Inc (ORLY)?

Abigail Fisher
·6 mins read

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds' and successful investors' positions as of the end of the second quarter. You can find articles about an individual hedge fund's trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 5 years and analyze what the smart money thinks of O'Reilly Automotive Inc (NASDAQ:ORLY) based on that data and determine whether they were really smart about the stock.

O'Reilly Automotive Inc (NASDAQ:ORLY) was in 61 hedge funds' portfolios at the end of the second quarter of 2020. The all time high for this statistics is 64. ORLY shareholders have witnessed an increase in enthusiasm from smart money recently. There were 60 hedge funds in our database with ORLY holdings at the end of March. Our calculations also showed that ORLY isn't among the 30 most popular stocks among hedge funds (click for Q2 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 56 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.

Daniel Sundheim D1 Capital
Daniel Sundheim D1 Capital

Daniel Sundheim of D1 Capital Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Currently, investors are pessimistic about commercial real estate investments. So, we are checking out this contrarian play to diversify our market exposure. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Now we're going to take a glance at the recent hedge fund action encompassing O'Reilly Automotive Inc (NASDAQ:ORLY).

What does smart money think about O'Reilly Automotive Inc (NASDAQ:ORLY)?

At Q2's end, a total of 61 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 2% from the previous quarter. On the other hand, there were a total of 50 hedge funds with a bullish position in ORLY a year ago. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in O'Reilly Automotive Inc (NASDAQ:ORLY) was held by Akre Capital Management, which reported holding $776.7 million worth of stock at the end of September. It was followed by D1 Capital Partners with a $756.9 million position. Other investors bullish on the company included Diamond Hill Capital, Palestra Capital Management, and SRS Investment Management. In terms of the portfolio weights assigned to each position Akre Capital Management allocated the biggest weight to O'Reilly Automotive Inc (NASDAQ:ORLY), around 5.85% of its 13F portfolio. D1 Capital Partners is also relatively very bullish on the stock, setting aside 5.65 percent of its 13F equity portfolio to ORLY.

As aggregate interest increased, specific money managers were leading the bulls' herd. Scopus Asset Management, managed by Alexander Mitchell, initiated the biggest position in O'Reilly Automotive Inc (NASDAQ:ORLY). Scopus Asset Management had $89.6 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace's Marshall Wace LLP also initiated a $51.2 million position during the quarter. The other funds with new positions in the stock are Doug Gordon, Jon Hilsabeck and Don Jabro's Shellback Capital, Dmitry Balyasny's Balyasny Asset Management, and Steven Boyd's Armistice Capital.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as O'Reilly Automotive Inc (NASDAQ:ORLY) but similarly valued. We will take a look at Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC), Southern Copper Corporation (NYSE:SCCO), Twilio Inc. (NYSE:TWLO), Cognizant Technology Solutions Corp (NASDAQ:CTSH), Chunghwa Telecom Co., Ltd (NYSE:CHT), The Allstate Corporation (NYSE:ALL), and Match Group, Inc. (NASDAQ:MTCH). This group of stocks' market values are similar to ORLY's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ERIC,23,400790,3 SCCO,19,222306,0 TWLO,66,3724819,14 CTSH,39,2593830,1 CHT,4,157957,-2 ALL,46,1451840,3 MTCH,39,1755544,1 Average,33.7,1472441,2.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.7 hedge funds with bullish positions and the average amount invested in these stocks was $1472 million. That figure was $2931 million in ORLY's case. Twilio Inc. (NYSE:TWLO) is the most popular stock in this table. On the other hand Chunghwa Telecom Co., Ltd (NYSE:CHT) is the least popular one with only 4 bullish hedge fund positions. O'Reilly Automotive Inc (NASDAQ:ORLY) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ORLY is 80.6. 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. 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 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 28.2% in 2020 through August 24th but beat the market by 20.6 percentage points. Unfortunately ORLY wasn't nearly as popular as these 10 stocks and hedge funds that were betting on ORLY were disappointed as the stock returned 10% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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

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