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Hedge Funds Started Cashing Out Of O’Reilly Automotive Inc (ORLY)

Abigail Fisher
·6 mins read

In this article we will take a look at whether hedge funds think O'Reilly Automotive Inc (NASDAQ:ORLY) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

O'Reilly Automotive Inc (NASDAQ:ORLY) investors should be aware of a decrease in hedge fund sentiment lately. Our calculations also showed that ORLY 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.

In the eyes of most shareholders, hedge funds are viewed as slow, outdated financial tools of years past. While there are over 8000 funds in operation at present, Our experts hone in on the aristocrats of this club, about 850 funds. These investment experts preside over the majority of all hedge funds' total capital, and by paying attention to their first-class stock picks, Insider Monkey has revealed many investment strategies that have historically outpaced the market. Insider Monkey's flagship short hedge fund strategy surpassed the S&P 500 short ETFs by around 20 percentage points per annum since its inception in March 2017. Our portfolio of short stocks lost 36% since February 2017 (through May 18th) even though the market was up 30% during the same period. We just shared a list of 8 short targets in our latest quarterly update .

[caption id="attachment_745223" align="aligncenter" width="399"] Daniel Sundheim of D1 Capital Partners[/caption]

Daniel Sundheim D1 Capital
Daniel Sundheim D1 Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, Europe is set to become the world’s largest cannabis market, so we checked out this European marijuana stock pitch. Also, we are still not out of the woods in terms of the coronavirus pandemic. So, we checked out this analyst’s “corona catalyst plays“. 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 take a peek at the key hedge fund action encompassing O'Reilly Automotive Inc (NASDAQ:ORLY).

How have hedgies been trading O'Reilly Automotive Inc (NASDAQ:ORLY)?

At Q1's end, a total of 60 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -6% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in ORLY over the last 18 quarters. With hedge funds' capital changing hands, there exists an "upper tier" of notable hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).

More specifically, D1 Capital Partners was the largest shareholder of O'Reilly Automotive Inc (NASDAQ:ORLY), with a stake worth $848.6 million reported as of the end of September. Trailing D1 Capital Partners was Akre Capital Management, which amassed a stake valued at $554.8 million. Viking Global, Diamond Hill Capital, and SRS Investment 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 D1 Capital Partners allocated the biggest weight to O'Reilly Automotive Inc (NASDAQ:ORLY), around 8.77% of its 13F portfolio. Akre Capital Management is also relatively very bullish on the stock, earmarking 5.39 percent of its 13F equity portfolio to ORLY.

Since O'Reilly Automotive Inc (NASDAQ:ORLY) has witnessed a decline in interest from the entirety of the hedge funds we track, it's easy to see that there was a specific group of funds who sold off their entire stakes by the end of the third quarter. At the top of the heap, David Abrams's Abrams Capital Management dumped the biggest investment of all the hedgies followed by Insider Monkey, comprising close to $227.7 million in stock, and Dmitry Balyasny's Balyasny Asset Management was right behind this move, as the fund sold off about $56.4 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 4 funds by the end of the third quarter.

Let's now review hedge fund activity in other stocks similar to O'Reilly Automotive Inc (NASDAQ:ORLY). We will take a look at KLA Corporation (NASDAQ:KLAC), Spotify Technology S.A. (NYSE:SPOT), Agilent Technologies Inc. (NYSE:A), and Willis Towers Watson Public Limited Company (NASDAQ:WLTW). All of these stocks' market caps match ORLY's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position KLAC,26,382931,-4 SPOT,40,1124522,2 A,35,2667892,-11 WLTW,43,1654147,8 Average,36,1457373,-1.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 36 hedge funds with bullish positions and the average amount invested in these stocks was $1457 million. That figure was $2487 million in ORLY's case. Willis Towers Watson Public Limited Company (NASDAQ:WLTW) is the most popular stock in this table. On the other hand KLA Corporation (NASDAQ:KLAC) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks O'Reilly Automotive Inc (NASDAQ:ORLY) is more popular among hedge funds. 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 returned 7.9% in 2020 through May 22nd but still managed to beat the market by 15.6 percentage points. Hedge funds were also right about betting on ORLY as the stock returned 34.5% so far in Q2 (through May 22nd) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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

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