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Is CarGurus, Inc. (CARG) Going to Burn These Hedge Funds?

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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 CarGurus, Inc. (NASDAQ:CARG).

Is CarGurus, Inc. (NASDAQ:CARG) a worthy stock to buy now? The smart money was becoming less hopeful. The number of long hedge fund bets were trimmed by 6 lately. CarGurus, Inc. (NASDAQ:CARG) was in 23 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 33. Our calculations also showed that CARG isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

If you'd ask most traders, hedge funds are seen as worthless, old financial tools of yesteryear. While there are over 8000 funds in operation today, Our researchers hone in on the aristocrats of this club, approximately 850 funds. These investment experts shepherd most of the hedge fund industry's total asset base, and by tailing their finest equity investments, Insider Monkey has found a few investment strategies that have historically outstripped Mr. Market. Insider Monkey's flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

Paul Reeder PAR Capital Management
Paul Reeder PAR Capital Management

Paul Reeder of PAR Capital Management

At Insider Monkey, we scour multiple sources to uncover 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 EV 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. Keeping this in mind let's go over the key hedge fund action surrounding CarGurus, Inc. (NASDAQ:CARG).

Do Hedge Funds Think CARG Is A Good Stock To Buy Now?

Heading into the third quarter of 2021, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -21% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CARG over the last 24 quarters. So, let's examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

When looking at the institutional investors followed by Insider Monkey, PAR Capital Management, managed by Paul Reeder and Edward Shapiro, holds the biggest position in CarGurus, Inc. (NASDAQ:CARG). PAR Capital Management has a $52.2 million position in the stock, comprising 1.3% of its 13F portfolio. Coming in second is Two Sigma Advisors, managed by John Overdeck and David Siegel, which holds a $38.1 million position; 0.1% of its 13F portfolio is allocated to the company. Some other professional money managers with similar optimism contain Jonathan Auerbach's Hound Partners, Joseph Samuels's Islet Management and Jeff Osher's No Street Capital. In terms of the portfolio weights assigned to each position Hidden Lake Asset Management allocated the biggest weight to CarGurus, Inc. (NASDAQ:CARG), around 5.67% of its 13F portfolio. Hill City Capital is also relatively very bullish on the stock, dishing out 3.51 percent of its 13F equity portfolio to CARG.

Seeing as CarGurus, Inc. (NASDAQ:CARG) has experienced declining sentiment from the entirety of the hedge funds we track, logic holds that there were a few hedgies that slashed their entire stakes last quarter. Interestingly, Gavin Baker's Atreides Management sold off the biggest position of the 750 funds watched by Insider Monkey, comprising an estimated $63.6 million in stock. Matt Sirovich and Jeremy Mindich's fund, Scopia Capital, also cut its stock, about $30.7 million worth. These transactions are interesting, as total hedge fund interest fell by 6 funds last quarter.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as CarGurus, Inc. (NASDAQ:CARG) but similarly valued. We will take a look at Corsair Gaming, Inc. (NASDAQ:CRSR), Momentive Global Inc (NASDAQ:MNTV), 8x8, Inc. (NYSE:EGHT), NorthWestern Corporation (NASDAQ:NWE), Azul S.A. (NYSE:AZUL), American Well Corporation (NYSE:AMWL), and Werner Enterprises, Inc. (NASDAQ:WERN). This group of stocks' market caps resemble CARG's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CRSR,14,42455,5 MNTV,28,238702,-4 EGHT,29,928021,5 NWE,15,56305,4 AZUL,10,120056,-1 AMWL,20,124952,1 WERN,20,203288,-1 Average,19.4,244826,1.3 [/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 $245 million. That figure was $242 million in CARG's case. 8x8, Inc. (NYSE:EGHT) is the most popular stock in this table. On the other hand Azul S.A. (NYSE:AZUL) is the least popular one with only 10 bullish hedge fund positions. CarGurus, Inc. (NASDAQ:CARG) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CARG is 54.1. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 24% in 2021 through October 22nd and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on CARG as the stock returned 29.2% since the end of Q2 (through 10/22) 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.