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The Insider Monkey team has completed processing the quarterly 13F filings for the September quarter submitted by the hedge funds and other money managers included in our extensive database. Most hedge fund investors experienced strong gains on the back of a strong market performance, which certainly propelled them to adjust their equity holdings so as to maintain the desired risk profile. As a result, the relevancy of these public filings and their content is indisputable, as they may reveal numerous high-potential stocks. The following article will discuss the smart money sentiment towards Lithia Motors Inc (NYSE:LAD).
Is LAD a good stock to buy now? Lithia Motors Inc (NYSE:LAD) has experienced an increase in enthusiasm from smart money of late. Lithia Motors Inc (NYSE:LAD) was in 49 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 31. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 31 hedge funds in our database with LAD positions at the end of the second quarter. Our calculations also showed that LAD isn't among the 30 most popular stocks among hedge funds (click for Q3 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 has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 66 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
Mark Kingdon of Kingdon Capital
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this cannabis tech stock right now. We go through lists like the 15 best blue chip stocks to buy 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. 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 website. Now we're going to take a look at the fresh hedge fund action surrounding Lithia Motors Inc (NYSE:LAD).
Do Hedge Funds Think LAD Is A Good Stock To Buy Now?
At third quarter's end, a total of 49 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 58% from the second quarter of 2020. On the other hand, there were a total of 26 hedge funds with a bullish position in LAD a year ago. With the smart money's sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were adding to their stakes considerably (or already accumulated large positions).
Among these funds, Abrams Capital Management held the most valuable stake in Lithia Motors Inc (NYSE:LAD), which was worth $507.4 million at the end of the third quarter. On the second spot was Southpoint Capital Advisors which amassed $121.3 million worth of shares. Park West Asset Management, Cardinal Capital, and Tensile Capital 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 16.04% of its 13F portfolio. Tensile Capital is also relatively very bullish on the stock, designating 9.37 percent of its 13F equity portfolio to LAD.
Now, specific money managers were breaking ground themselves. Southpoint Capital Advisors, managed by John Smith Clark, created the most valuable position in Lithia Motors Inc (NYSE:LAD). Southpoint Capital Advisors had $121.3 million invested in the company at the end of the quarter. Robert Boucai's Newbrook Capital Advisors also initiated a $28.3 million position during the quarter. The following funds were also among the new LAD investors: Parsa Kiai's Steamboat Capital Partners, Anand More's SAYA Management, and Mark Kingdon's Kingdon Capital.
Let's go over hedge fund activity in other stocks similar to Lithia Motors Inc (NYSE:LAD). We will take a look at Jabil Inc. (NYSE:JBL), Dicks Sporting Goods Inc (NYSE:DKS), Flowers Foods, Inc. (NYSE:FLO), Tetra Tech, Inc. (NASDAQ:TTEK), Grupo Aval Acciones y Valores S.A. (NYSE:AVAL), Sonoco Products Company (NYSE:SON), and Blueprint Medicines Corporation (NASDAQ:BPMC). This group of 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 JBL,31,399819,0 DKS,41,626418,1 FLO,30,298843,6 TTEK,22,88894,3 AVAL,4,9119,-5 SON,29,149777,4 BPMC,34,1220886,-4 Average,27.3,399108,0.7 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 27.3 hedge funds with bullish positions and the average amount invested in these stocks was $399 million. That figure was $1149 million in LAD's case. Dicks Sporting Goods Inc (NYSE:DKS) is the most popular stock in this table. On the other hand Grupo Aval Acciones y Valores S.A. (NYSE:AVAL) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Lithia Motors Inc (NYSE:LAD) is more popular among hedge funds. Our overall hedge fund sentiment score for LAD is 90. 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 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks returned 32.9% in 2020 through December 8th but still managed to beat the market by 16.2 percentage points. Hedge funds were also right about betting on LAD as the stock returned 28% since the end of September (through 12/8) 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.
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Disclosure: None. This article was originally published at Insider Monkey.