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The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 823 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of June 30th, when the S&P 500 Index was trading around the 3100 level. Stocks kept going up since then. In this article we look at how hedge funds traded Lithia Motors Inc (NYSE:LAD) and determine whether the smart money was really smart about this stock.
Lithia Motors Inc (NYSE:LAD) has experienced an increase in support from the world's most elite money managers of late. Lithia Motors Inc (NYSE:LAD) was in 31 hedge funds' portfolios at the end of June. The all time high for this statistics is 29. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 27 hedge funds in our database with LAD positions at the end of the first quarter. Our calculations also showed that LAD isn't among the 30 most popular stocks among hedge funds (click for Q2 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.
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 was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 56 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'll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 34% through August 17th. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Paul Marshall of Marshall Wace
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, this “mom” trader turned $2000 into $2 million within 2 years. So, we are checking out her best trade idea of the month. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now we're going to take a gander at the latest hedge fund action encompassing Lithia Motors Inc (NYSE:LAD).
How are hedge funds trading Lithia Motors Inc (NYSE:LAD)?
Heading into the third quarter of 2020, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 15% from one quarter earlier. By comparison, 21 hedge funds held shares or bullish call options in LAD a year ago. So, let's see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Abrams Capital Management was the largest shareholder of Lithia Motors Inc (NYSE:LAD), with a stake worth $336.9 million reported as of the end of September. Trailing Abrams Capital Management was Cardinal Capital, which amassed a stake valued at $88.3 million. Park West Asset Management, Tensile Capital, and Hawk Ridge 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 Abrams Capital Management allocated the biggest weight to Lithia Motors Inc (NYSE:LAD), around 10.89% of its 13F portfolio. Tensile Capital is also relatively very bullish on the stock, designating 7.11 percent of its 13F equity portfolio to LAD.
Now, key money managers were leading the bulls' herd. Scopus Asset Management, managed by Alexander Mitchell, established the most valuable position in Lithia Motors Inc (NYSE:LAD). Scopus Asset Management had $30.3 million invested in the company at the end of the quarter. Robert Bishop's Impala Asset Management also initiated a $26.8 million position during the quarter. The following funds were also among the new LAD investors: Ken Grossman and Glen Schneider's SG Capital Management, Paul Marshall and Ian Wace's Marshall Wace LLP, and Brad Stephens's Six Columns Capital.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Lithia Motors Inc (NYSE:LAD) but similarly valued. We will take a look at Virgin Galactic Holdings, Inc. (NYSE:SPCE), Stantec Inc. (NYSE:STN), Fox Factory Holding Corp (NASDAQ:FOXF), Axis Capital Holdings Limited (NYSE:AXS), The Timken Company (NYSE:TKR), Strategic Education Inc (NASDAQ:STRA), and PVH Corp (NYSE:PVH). All of these stocks' market caps resemble LAD's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position SPCE,22,60327,10 STN,5,47552,-7 FOXF,13,132172,3 AXS,35,661585,3 TKR,31,302095,1 STRA,21,274084,8 PVH,28,474978,10 Average,22.1,278970,4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 22.1 hedge funds with bullish positions and the average amount invested in these stocks was $279 million. That figure was $762 million in LAD's case. Axis Capital Holdings Limited (NYSE:AXS) is the most popular stock in this table. On the other hand Stantec Inc. (NYSE:STN) is the least popular one with only 5 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 overall hedge fund sentiment score for LAD is 82.3. 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. 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 23.8% in 2020 through September 14th and still beat the market by 17.6 percentage points. Hedge funds were also right about betting on LAD as the stock returned 61.3% during Q3 (through September 14th) 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.