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Did Hedge Funds Drop The Ball On AutoNation, Inc. (AN) ?

Nina Todic

Is AutoNation, Inc. (NYSE:AN) a good stock to buy right now? We at Insider Monkey like to examine what billionaires and hedge funds think of a company before spending days of research on it. Given their 2 and 20 payment structure, hedge funds have more incentives and resources than the average investor. The funds have access to expert networks and get tips from industry insiders. They also have numerous Ivy League graduates and MBAs. Like everyone else, hedge funds perform miserably at times, but their consensus picks have historically outperformed the market after risk adjustments.

Is AutoNation, Inc. (NYSE:AN) a safe investment today? Prominent investors are taking an optimistic view. The number of long hedge fund bets rose by 1 in recent months. Our calculations also showed that AN isn't among the 30 most popular stocks among hedge funds (view the video below). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

5 Most Popular Stocks Among Hedge Funds

To the average investor there are plenty of tools investors have at their disposal to size up stocks. A duo of the most useful tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the top money managers can beat the S&P 500 by a healthy margin (see the details here).

ESL INVESTMENTS

Unlike former hedge manager, Dr. Steve Sjuggerud, who is convinced Dow will soar past 40000, our long-short investment strategy doesn't rely on bull markets to deliver double digit returns. We only rely on hedge fund buy/sell signals. We're going to analyze the latest hedge fund action surrounding AutoNation, Inc. (NYSE:AN).

How have hedgies been trading AutoNation, Inc. (NYSE:AN)?

Heading into the third quarter of 2019, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 5% from the previous quarter. On the other hand, there were a total of 23 hedge funds with a bullish position in AN 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.

No of Hedge Funds with AN Positions

Of the funds tracked by Insider Monkey, ESL Investments, managed by Edward Lampert, holds the largest position in AutoNation, Inc. (NYSE:AN). ESL Investments has a $147.9 million position in the stock, comprising 63.4% of its 13F portfolio. Coming in second is Arlington Value Capital, led by Allan Mecham and Ben Raybould, holding a $142 million position; 9.6% of its 13F portfolio is allocated to the stock. Some other hedge funds and institutional investors with similar optimism include Mario Gabelli's GAMCO Investors, Ken Griffin's Citadel Investment Group and D. E. Shaw's D E Shaw.

Now, key money managers have been driving this bullishness. Renaissance Technologies established the largest position in AutoNation, Inc. (NYSE:AN). Renaissance Technologies had $11 million invested in the company at the end of the quarter. Charles Davidson and Joseph Jacobs's Wexford Capital also made a $4.8 million investment in the stock during the quarter. The following funds were also among the new AN investors: Joel Greenblatt's Gotham Asset Management, Paul Tudor Jones's Tudor Investment Corp, and Michael Platt and William Reeves's BlueCrest Capital Mgmt..

Let's also examine hedge fund activity in other stocks - not necessarily in the same industry as AutoNation, Inc. (NYSE:AN) but similarly valued. We will take a look at NCR Corporation (NYSE:NCR), Perspecta Inc. (NYSE:PRSP), FirstService Corporation (NASDAQ:FSV), and China Biologic Products Holdings, Inc. (NASDAQ:CBPO). This group of stocks' market values are closest to AN's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NCR,24,263623,2 PRSP,40,776252,6 FSV,10,140690,-1 CBPO,9,144845,1 Average,20.75,331353,2 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.75 hedge funds with bullish positions and the average amount invested in these stocks was $331 million. That figure was $403 million in AN's case. Perspecta Inc. (NYSE:PRSP) is the most popular stock in this table. On the other hand China Biologic Products Holdings, Inc. (NASDAQ:CBPO) is the least popular one with only 9 bullish hedge fund positions. AutoNation, Inc. (NYSE:AN) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 20 most popular stocks among hedge funds returned 24.4% in 2019 through September 30th and outperformed the S&P 500 ETF (SPY) by 4 percentage points. Hedge funds were also right about betting on AN as the stock returned 20.9% during the third quarter and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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