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Is CARS A Good Stock To Buy According To Hedge Funds?

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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 third 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 Cars.com, LLC (NYSE:CARS) based on that data.

Is CARS a good stock to buy now? Cars.com, LLC (NYSE:CARS) was in 22 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 38. CARS investors should be aware of an increase in hedge fund interest recently. There were 21 hedge funds in our database with CARS positions at the end of the second quarter. Our calculations also showed that CARS isn't among the 30 most popular stocks among hedge funds (click for Q3 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 multitude of formulas shareholders can use to size up publicly traded companies. Some of the most innovative formulas are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the top picks of the best fund managers can outpace the broader indices by a superb margin (see the details here).

Chuck Royce
Chuck Royce

Chuck Royce of Royce & Associates

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. You can subscribe to our free daily newsletter on our website. Now we're going to review the latest hedge fund action encompassing Cars.com, LLC (NYSE:CARS).

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

At Q3's end, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from one quarter earlier. By comparison, 31 hedge funds held shares or bullish call options in CARS a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Greenvale Capital was the largest shareholder of Cars.com, LLC (NYSE:CARS), with a stake worth $36.3 million reported as of the end of September. Trailing Greenvale Capital was Contrarius Investment Management, which amassed a stake valued at $15 million. Fairpointe Capital, D E Shaw, and Steadfast Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Greenvale Capital allocated the biggest weight to Cars.com, LLC (NYSE:CARS), around 6.14% of its 13F portfolio. Blue Grotto Capital is also relatively very bullish on the stock, dishing out 3.3 percent of its 13F equity portfolio to CARS.

As industrywide interest jumped, key hedge funds were leading the bulls' herd. Islet Management, managed by Joseph Samuels, assembled the biggest position in Cars.com, LLC (NYSE:CARS). Islet Management had $7.2 million invested in the company at the end of the quarter. Ben Gordon's Blue Grotto Capital also initiated a $6.7 million position during the quarter. The other funds with brand new CARS positions are Sander Gerber's Hudson Bay Capital Management, Chuck Royce's Royce & Associates, and Hoon Kim's Quantinno Capital.

Let's check out hedge fund activity in other stocks similar to Cars.com, LLC (NYSE:CARS). We will take a look at MSG Networks Inc (NYSE:MSGN), Meridian Bancorp, Inc. (NASDAQ:EBSB), Freeline Therapeutics Holdings plc (NASDAQ:FRLN), Capstead Mortgage Corporation (NYSE:CMO), Geron Corporation (NASDAQ:GERN), Assembly Biosciences Inc (NASDAQ:ASMB), and TrueCar Inc (NASDAQ:TRUE). This group of stocks' market caps match CARS's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MSGN,26,189325,1 EBSB,14,52861,-2 FRLN,9,29817,9 CMO,15,60667,2 GERN,16,133881,5 ASMB,22,195597,3 TRUE,18,103244,1 Average,17.1,109342,2.7 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 17.1 hedge funds with bullish positions and the average amount invested in these stocks was $109 million. That figure was $134 million in CARS's case. MSG Networks Inc (NYSE:MSGN) is the most popular stock in this table. On the other hand Freeline Therapeutics Holdings plc (NASDAQ:FRLN) is the least popular one with only 9 bullish hedge fund positions. Cars.com, LLC (NYSE:CARS) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CARS is 61.6. 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. Hedge funds were also right about betting on CARS as the stock returned 61% since the end of Q3 (through 12/14) 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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