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Hedge Funds Are Nibbling On AutoNation, Inc. (AN)

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After several tireless days we have finished crunching the numbers from nearly 900 13F filings issued by the elite hedge funds and other investment firms that we track at Insider Monkey, which disclosed those firms' equity portfolios as of March 31st. The results of that effort will be put on display in this article, as we share valuable insight into the smart money sentiment towards AutoNation, Inc. (NYSE:AN).

AutoNation, Inc. (NYSE:AN) investors should pay attention to an increase in support from the world's most elite money managers of late. AutoNation, Inc. (NYSE:AN) was in 24 hedge funds' portfolios at the end of March. The all time high for this statistic is 36. There were 23 hedge funds in our database with AN positions at the end of the fourth quarter. Our calculations also showed that AN isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ricky Sandler's tsop 10 stock picks
Ricky Sandler's tsop 10 stock picks

Ricky Sandler of Eminence Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind let's take a look at the latest hedge fund action encompassing AutoNation, Inc. (NYSE:AN).

Do Hedge Funds Think AN Is A Good Stock To Buy Now?

Heading into the second quarter of 2021, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from one quarter earlier. By comparison, 27 hedge funds held shares or bullish call options in AN a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Among these funds, Eminence Capital held the most valuable stake in AutoNation, Inc. (NYSE:AN), which was worth $139.7 million at the end of the fourth quarter. On the second spot was AQR Capital Management which amassed $103.6 million worth of shares. ESL Investments, Arrowstreet Capital, and GAMCO Investors 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 ESL Investments allocated the biggest weight to AutoNation, Inc. (NYSE:AN), around 66.43% of its 13F portfolio. Steel Canyon Capital is also relatively very bullish on the stock, earmarking 1.89 percent of its 13F equity portfolio to AN.

As aggregate interest increased, specific money managers were breaking ground themselves. Bridgewater Associates, managed by Ray Dalio, created the biggest position in AutoNation, Inc. (NYSE:AN). Bridgewater Associates had $7.2 million invested in the company at the end of the quarter. Donald Sussman's Paloma Partners also made a $2.4 million investment in the stock during the quarter. The other funds with new positions in the stock are Mika Toikka's AlphaCrest Capital Management, Peter Muller's PDT Partners, and Bruce Kovner's Caxton Associates LP.

Let's now take a look at 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 Western Midstream Partners, LP (NYSE:WES), Kilroy Realty Corp (NYSE:KRC), Ultragenyx Pharmaceutical Inc (NASDAQ:RARE), People's United Financial, Inc. (NASDAQ:PBCT), Woodward Inc (NASDAQ:WWD), Smartsheet Inc. (NYSE:SMAR), and SiteOne Landscape Supply, Inc. (NYSE:SITE). This group of stocks' market valuations are similar to AN's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position WES,8,127464,-2 KRC,27,328922,2 RARE,25,588066,-1 PBCT,20,208579,-9 WWD,27,643051,8 SMAR,39,1490070,-6 SITE,16,67390,-1 Average,23.1,493363,-1.3 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 23.1 hedge funds with bullish positions and the average amount invested in these stocks was $493 million. That figure was $585 million in AN's case. Smartsheet Inc. (NYSE:SMAR) is the most popular stock in this table. On the other hand Western Midstream Partners, LP (NYSE:WES) is the least popular one with only 8 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 overall hedge fund sentiment score for AN is 51.8. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and still beat the market by 7.7 percentage points. Hedge funds were also right about betting on AN, though not to the same extent, as the stock returned 10.1% since Q1 (through July 16th) and outperformed the market as well.

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