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We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn't mean that they don't have occasional colossal losses; they do (like Melvin Capital's recent GameStop losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards Copart, Inc. (NASDAQ:CPRT).
Is Copart (CPRT) stock a buy or sell? Hedge funds were getting less bullish. The number of bullish hedge fund positions were cut by 10 lately. Copart, Inc. (NASDAQ:CPRT) was in 46 hedge funds' portfolios at the end of December. The all time high for this statistic is 60. Our calculations also showed that CPRT isn't among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 56 hedge funds in our database with CPRT positions at the end of the third quarter.
Hedge funds' reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn't keep up with the unhedged returns of the market indices. 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 S&P 500 ETFs by 124 percentage points since March 2017 (see the details here).
Kevin Oram of Praesidium Investment Management Company
At Insider Monkey we leave no stone unturned when looking for 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 hydrogen fuel cell 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 (or at the end of this article). Now we're going to check out the new hedge fund action encompassing Copart, Inc. (NASDAQ:CPRT).
Do Hedge Funds Think CPRT Is A Good Stock To Buy Now?
At the end of December, a total of 46 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -18% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CPRT over the last 22 quarters. With the smart money's capital changing hands, there exists a few notable hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
The largest stake in Copart, Inc. (NASDAQ:CPRT) was held by Praesidium Investment Management Company, which reported holding $141.3 million worth of stock at the end of December. It was followed by Candlestick Capital Management with a $136.8 million position. Other investors bullish on the company included Gobi Capital, Echo Street Capital Management, and Point72 Asset Management. In terms of the portfolio weights assigned to each position Bayberry Capital Partners allocated the biggest weight to Copart, Inc. (NASDAQ:CPRT), around 9.27% of its 13F portfolio. Gobi Capital is also relatively very bullish on the stock, dishing out 8.53 percent of its 13F equity portfolio to CPRT.
Seeing as Copart, Inc. (NASDAQ:CPRT) has experienced declining sentiment from hedge fund managers, we can see that there were a few funds that elected to cut their positions entirely in the fourth quarter. At the top of the heap, Aaron Cowen's Suvretta Capital Management said goodbye to the biggest investment of the "upper crust" of funds followed by Insider Monkey, comprising close to $71 million in stock. John Smith Clark's fund, Southpoint Capital Advisors, also said goodbye to its stock, about $42.1 million worth. These transactions are interesting, as aggregate hedge fund interest dropped by 10 funds in the fourth quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Copart, Inc. (NASDAQ:CPRT) but similarly valued. We will take a look at Datadog, Inc. (NASDAQ:DDOG), Chunghwa Telecom Co., Ltd (NYSE:CHT), PACCAR Inc (NASDAQ:PCAR), Bilibili Inc. (NASDAQ:BILI), Eversource Energy (NYSE:ES), Public Service Enterprise Group Incorporated (NYSE:PEG), and Otis Worldwide Corporation (NYSE:OTIS). This group of stocks' market valuations match CPRT's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position DDOG,52,2899490,10 CHT,5,157212,0 PCAR,34,418647,0 BILI,46,3083768,9 ES,24,511581,4 PEG,28,374371,5 OTIS,59,2512029,6 Average,35.4,1422443,4.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 35.4 hedge funds with bullish positions and the average amount invested in these stocks was $1422 million. That figure was $1138 million in CPRT's case. Otis Worldwide Corporation (NYSE:OTIS) 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 5 bullish hedge fund positions. Copart, Inc. (NASDAQ:CPRT) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CPRT is 56. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and beat the market again by 0.8 percentage points. Unfortunately CPRT wasn't nearly as popular as these 30 stocks and hedge funds that were betting on CPRT were disappointed as the stock returned -16.2% since the end of December (through 3/19) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.