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Do Hedge Funds Love Lithia Motors Inc (LAD)?

Abigail Fisher

In this article we will check out the progression of hedge fund sentiment towards Lithia Motors Inc (NYSE:LAD) and determine whether it is a good investment 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 employ 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 Lithia Motors Inc (NYSE:LAD) a good investment today? Prominent investors are in a pessimistic mood. The number of bullish hedge fund bets dropped by 2 recently. Our calculations also showed that LAD 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.

To the average investor there are many indicators stock market investors put to use to value their stock investments. A pair of the most useful indicators are hedge fund and insider trading activity. Our researchers have shown that, historically, those who follow the best picks of the elite fund managers can outclass their index-focused peers by a significant amount (see the details here).

[caption id="attachment_671014" align="aligncenter" width="395"] David Brown of Hawk Ridge Management[/caption]

David Brown Hawk Ridge Partners

We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like these. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we're going to check out the recent hedge fund action regarding Lithia Motors Inc (NYSE:LAD).

How are hedge funds trading Lithia Motors Inc (NYSE:LAD)?

At the end of the first quarter, a total of 27 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -7% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards LAD 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.

The largest stake in Lithia Motors Inc (NYSE:LAD) was held by Abrams Capital Management, which reported holding $182.1 million worth of stock at the end of September. It was followed by Cardinal Capital with a $61.3 million position. Other investors bullish on the company included Park West Asset Management, Tensile Capital, and Eminence Capital. In terms of the portfolio weights assigned to each position Abrams Capital Management allocated the biggest weight to Lithia Motors Inc (NYSE:LAD), around 7.17% of its 13F portfolio. Tensile Capital is also relatively very bullish on the stock, designating 4.91 percent of its 13F equity portfolio to LAD.

Due to the fact that Lithia Motors Inc (NYSE:LAD) has experienced a decline in interest from hedge fund managers, logic holds that there were a few fund managers who sold off their positions entirely in the first quarter. Intriguingly, Ken Heebner's Capital Growth Management sold off the largest position of the 750 funds tracked by Insider Monkey, worth about $23.2 million in stock. Sander Gerber's fund, Hudson Bay Capital Management, also said goodbye to its stock, about $4.6 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 2 funds in the first quarter.

Let's now take a look at hedge fund activity in other stocks similar to Lithia Motors Inc (NYSE:LAD). We will take a look at Kennedy-Wilson Holdings Inc (NYSE:KW), Acushnet Holdings Corp. (NYSE:GOLF), Park Hotels & Resorts Inc. (NYSE:PK), and IBERIABANK Corporation (NASDAQ:IBKC). This group of stocks' market valuations match LAD's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KW,22,308206,5 GOLF,12,14131,-4 PK,26,162562,13 IBKC,30,129219,-2 Average,22.5,153530,3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 22.5 hedge funds with bullish positions and the average amount invested in these stocks was $154 million. That figure was $388 million in LAD's case. IBERIABANK Corporation (NASDAQ:IBKC) is the most popular stock in this table. On the other hand Acushnet Holdings Corp. (NYSE:GOLF) is the least popular one with only 12 bullish hedge fund positions. Lithia Motors Inc (NYSE:LAD) is not the most popular stock in this group but hedge fund interest is still above average. 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 8.3% in 2020 through the end of May but still beat the market by 13.2 percentage points. Hedge funds were also right about betting on LAD as the stock returned 47.9% in Q2 (through the end of May) 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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