In this article you are going to find out whether hedge funds think Autohome Inc (NYSE:ATHM) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It's not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.
Autohome Inc (NYSE:ATHM) has seen an increase in activity from the world's largest hedge funds in recent months. Our calculations also showed that ATHM isn't among the 30 most popular stocks among hedge funds (click for Q1 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.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? 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 more than 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
[caption id="attachment_365194" align="aligncenter" width="396"] David E. Shaw of D.E. Shaw[/caption]
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, We take a look at lists like the 10 stocks that went up during the 2008 crash to identify the companies that are likely to deliver double digit returns in up and down markets. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now we're going to go over the new hedge fund action surrounding Autohome Inc (NYSE:ATHM).
What does smart money think about Autohome Inc (NYSE:ATHM)?
At the end of the first quarter, a total of 15 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ATHM over the last 18 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Orbis Investment Management held the most valuable stake in Autohome Inc (NYSE:ATHM), which was worth $565 million at the end of the third quarter. On the second spot was OZ Management which amassed $77.5 million worth of shares. D E Shaw, Giverny Capital, and AQR 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 Orbis Investment Management allocated the biggest weight to Autohome Inc (NYSE:ATHM), around 5.38% of its 13F portfolio. Giverny Capital is also relatively very bullish on the stock, designating 1.57 percent of its 13F equity portfolio to ATHM.
As aggregate interest increased, key money managers have jumped into Autohome Inc (NYSE:ATHM) headfirst. OZ Management, managed by Daniel S. Och, assembled the biggest position in Autohome Inc (NYSE:ATHM). OZ Management had $77.5 million invested in the company at the end of the quarter. Francois Rochon's Giverny Capital also initiated a $12.3 million position during the quarter. The other funds with new positions in the stock are Stephen Mildenhall's Contrarius Investment Management, Fang Zheng's Keywise Capital Management, and John Overdeck and David Siegel's Two Sigma Advisors.
Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Autohome Inc (NYSE:ATHM) but similarly valued. We will take a look at Carvana Co. (NYSE:CVNA), Lamb Weston Holdings, Inc. (NYSE:LW), Phillips 66 Partners LP (NYSE:PSXP), and Imperial Oil Limited (NYSE:IMO). This group of stocks' market valuations are similar to ATHM's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position CVNA,52,1819908,-1 LW,29,277239,-3 PSXP,5,13913,0 IMO,13,37766,3 Average,24.75,537207,-0.25 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.75 hedge funds with bullish positions and the average amount invested in these stocks was $537 million. That figure was $708 million in ATHM's case. Carvana Co. (NYSE:CVNA) is the most popular stock in this table. On the other hand Phillips 66 Partners LP (NYSE:PSXP) is the least popular one with only 5 bullish hedge fund positions. Autohome Inc (NYSE:ATHM) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 13.3% in 2020 through June 25th and surpassed the market by 16.8 percentage points. Unfortunately ATHM wasn't nearly as popular as these 10 stocks (hedge fund sentiment was quite bearish); ATHM investors were disappointed as the stock returned 8.6% during the second quarter 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 most of these stocks already outperformed the market in 2020.
Disclosure: None. This article was originally published at Insider Monkey.