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Here is What Hedge Funds Think About AutoZone, Inc. (AZO)

Reymerlyn Martin

With the fourth-quarter round of 13F filings behind us it is time to take a look at the stocks in which some of the best money managers in the world preferred to invest or sell heading into the first quarter. One of these stocks was AutoZone, Inc. (NYSE:AZO).

AutoZone, Inc. (NYSE:AZO) was in 40 hedge funds' portfolios at the end of the fourth quarter of 2018. AZO shareholders have witnessed an increase in activity from the world's largest hedge funds recently. There were 30 hedge funds in our database with AZO holdings at the end of the previous quarter. Our calculations also showed that AZO isn't among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds' large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (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 27.5% through March 12, 2019. That's why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Harold Levy Iridian Asset Management

Let's take a glance at the latest hedge fund action regarding AutoZone, Inc. (NYSE:AZO).

What have hedge funds been doing with AutoZone, Inc. (NYSE:AZO)?

Heading into the first quarter of 2019, a total of 40 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 33% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards AZO over the last 14 quarters. With the smart money's positions undergoing their usual ebb and flow, there exists an "upper tier" of noteworthy hedge fund managers who were boosting their holdings considerably (or already accumulated large positions).

AZO_mar2019

More specifically, Two Sigma Advisors was the largest shareholder of AutoZone, Inc. (NYSE:AZO), with a stake worth $228 million reported as of the end of September. Trailing Two Sigma Advisors was Citadel Investment Group, which amassed a stake valued at $195.6 million. Millennium Management, Iridian Asset Management, and Arrowstreet Capital were also very fond of the stock, giving the stock large weights in their portfolios.

Consequently, key money managers have jumped into AutoZone, Inc. (NYSE:AZO) headfirst. Iridian Asset Management, managed by David Cohen and Harold Levy, assembled the biggest position in AutoZone, Inc. (NYSE:AZO). Iridian Asset Management had $167.9 million invested in the company at the end of the quarter. Brandon Haley's Holocene Advisors also made a $124.1 million investment in the stock during the quarter. The other funds with brand new AZO positions are David Costen Haley's HBK Investments, Steven Boyd's Armistice Capital, and Sander Gerber's Hudson Bay Capital Management.

Let's now review hedge fund activity in other stocks similar to AutoZone, Inc. (NYSE:AZO). We will take a look at ArcelorMittal (NYSE:MT), Ventas, Inc. (NYSE:VTR), Rogers Communications Inc. (NYSE:RCI), and Eversource Energy (NYSE:ES). This group of stocks' market caps are closest to AZO's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position MT,13,209696,-1 VTR,14,284947,-1 RCI,13,518999,-2 ES,20,658373,1 Average,15,418004,-0.75 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 15 hedge funds with bullish positions and the average amount invested in these stocks was $418 million. That figure was $1626 million in AZO's case. Eversource Energy (NYSE:ES) is the most popular stock in this table. On the other hand ArcelorMittal (NYSE:MT) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks AutoZone, Inc. (NYSE:AZO) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio. Our calculations showed that top 15 most popular stocks among hedge funds returned 19.7% through March 15th and outperformed the S&P 500 ETF (SPY) by 6.6 percentage points. Hedge funds were also right about betting on AZO, though not to the same extent, as the stock returned 14.8% and outperformed the market as well.

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

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