Many investors, including Paul Tudor Jones or Stan Druckenmiller, have been saying before the Q4 market crash that the stock market is overvalued due to a low interest rate environment that leads to companies swapping their equity for debt and focusing mostly on short-term performance such as beating the quarterly earnings estimates. In the first quarter, most investors recovered all of their Q4 losses as sentiment shifted and optimism dominated the US China trade negotiations. Nevertheless, many of the stocks that delivered strong returns in the first quarter still sport strong fundamentals and their gains were more related to the general market sentiment rather than their individual performance and hedge funds kept their bullish stance. In this article we will find out how hedge fund sentiment to CarGurus, Inc. (NASDAQ:CARG) changed recently.
CarGurus, Inc. (NASDAQ:CARG) was in 24 hedge funds' portfolios at the end of the first quarter of 2019. CARG has seen an increase in hedge fund sentiment lately. There were 19 hedge funds in our database with CARG positions at the end of the previous quarter. Our calculations also showed that carg isn't among the 30 most popular stocks among hedge funds.
Today there are a multitude of gauges investors employ to grade stocks. A pair of the most useful gauges are hedge fund and insider trading signals. We have shown that, historically, those who follow the top picks of the elite hedge fund managers can beat the S&P 500 by a very impressive amount (see the details here).
We're going to take a gander at the key hedge fund action encompassing CarGurus, Inc. (NASDAQ:CARG).
What have hedge funds been doing with CarGurus, Inc. (NASDAQ:CARG)?
At the end of the first quarter, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 26% from the previous quarter. By comparison, 7 hedge funds held shares or bullish call options in CARG a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
Among these funds, Hound Partners held the most valuable stake in CarGurus, Inc. (NASDAQ:CARG), which was worth $234.3 million at the end of the first quarter. On the second spot was Matrix Capital Management which amassed $208.3 million worth of shares. Moreover, Cat Rock Capital, Renaissance Technologies, and Two Sigma Advisors were also bullish on CarGurus, Inc. (NASDAQ:CARG), allocating a large percentage of their portfolios to this stock.
Now, key hedge funds were breaking ground themselves. Alyeska Investment Group, managed by Anand Parekh, established the most valuable position in CarGurus, Inc. (NASDAQ:CARG). Alyeska Investment Group had $5.4 million invested in the company at the end of the quarter. Doug Gordon, Jon Hilsabeck and Don Jabro's Shellback Capital also made a $4.5 million investment in the stock during the quarter. The following funds were also among the new CARG investors: James Thomas Berylson's Berylson Capital Partners, Andrew Feldstein and Stephen Siderow's Blue Mountain Capital, and Peter Muller's PDT Partners.
Let's now take a look at hedge fund activity in other stocks - not necessarily in the same industry as CarGurus, Inc. (NASDAQ:CARG) but similarly valued. We will take a look at Hawaiian Electric Industries, Inc. (NYSE:HE), First Horizon National Corporation (NYSE:FHN), Williams-Sonoma, Inc. (NYSE:WSM), and Itau CorpBanca (NYSE:ITCB). This group of stocks' market caps are similar to CARG's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position HE,12,144367,-1 FHN,16,126038,-3 WSM,29,371142,12 ITCB,1,4168,0 Average,14.5,161429,2 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.5 hedge funds with bullish positions and the average amount invested in these stocks was $161 million. That figure was $820 million in CARG's case. Williams-Sonoma, Inc. (NYSE:WSM) is the most popular stock in this table. On the other hand Itau CorpBanca (NYSE:ITCB) is the least popular one with only 1 bullish hedge fund positions. CarGurus, Inc. (NASDAQ:CARG) is not the most popular stock in this group but hedge fund interest is still above average. 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 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately CARG wasn't nearly as popular as these 20 stocks and hedge funds that were betting on CARG were disappointed as the stock returned -15.9% during the same period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market so far in Q2.
Disclosure: None. This article was originally published at Insider Monkey.