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Is Lithia Motors Inc (LAD) Going to Burn These Hedge Funds?

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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 have processed the filings of the more than 866 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their March 31st holdings, data that is available nowhere else. Should you consider Lithia Motors Inc (NYSE:LAD) for your portfolio? We'll look to this invaluable collective wisdom for the answer.

Lithia Motors Inc (NYSE:LAD) was in 40 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 49. LAD has seen an increase in hedge fund interest of late. There were 39 hedge funds in our database with LAD positions at the end of the fourth quarter. Our calculations also showed that LAD isn't among the 30 most popular stocks among hedge funds (click for Q1 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey's monthly stock picks returned 206.8% since March 2017 and outperformed the S&P 500 ETFs by more than 115 percentage points (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Ole Andreas Halvorsen Viking Global
Ole Andreas Halvorsen Viking Global

Ole Andreas Halvorsen of Viking Global

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. 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. Now we're going to analyze the fresh hedge fund action encompassing Lithia Motors Inc (NYSE:LAD).

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

At Q1's end, a total of 40 of the hedge funds tracked by Insider Monkey were long this stock, a change of 3% from the fourth quarter of 2020. The graph below displays the number of hedge funds with bullish position in LAD over the last 23 quarters. So, let's check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is LAD A Good Stock To Buy?
Is LAD A Good Stock To Buy?

More specifically, Abrams Capital Management was the largest shareholder of Lithia Motors Inc (NYSE:LAD), with a stake worth $917.1 million reported as of the end of March. Trailing Abrams Capital Management was Southpoint Capital Advisors, which amassed a stake valued at $213.1 million. Lyrical Asset Management, Cardinal Capital, and Viking Global 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 20.65% of its 13F portfolio. Tensile Capital is also relatively very bullish on the stock, setting aside 16.1 percent of its 13F equity portfolio to LAD.

With a general bullishness amongst the heavyweights, key hedge funds have jumped into Lithia Motors Inc (NYSE:LAD) headfirst. Lyrical Asset Management, managed by Andrew Wellington and Jeff Keswin, assembled the most outsized position in Lithia Motors Inc (NYSE:LAD). Lyrical Asset Management had $209.5 million invested in the company at the end of the quarter. Andreas Halvorsen's Viking Global also initiated a $126.9 million position during the quarter. The following funds were also among the new LAD investors: Zach Schreiber's Point State Capital, Noam Gottesman's GLG Partners, and John W. Moon's Moon Capital.

Let's now take a look at hedge fund activity in other stocks similar to Lithia Motors Inc (NYSE:LAD). We will take a look at East West Bancorp, Inc. (NASDAQ:EWBC), Bright Horizons Family Solutions Inc (NYSE:BFAM), ICON Public Limited Company (NASDAQ:ICLR), Pentair plc (NYSE:PNR), Molson Coors Beverage Company (NYSE:TAP), MKS Instruments, Inc. (NASDAQ:MKSI), and Dun & Bradstreet Corporation (NYSE:DNB). All of these stocks' market caps are similar to LAD's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position EWBC,25,467070,1 BFAM,18,78337,-2 ICLR,29,731050,0 PNR,30,775268,1 TAP,34,341099,-5 MKSI,22,512507,-5 DNB,29,835475,-3 Average,26.7,534401,-1.9 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.7 hedge funds with bullish positions and the average amount invested in these stocks was $534 million. That figure was $2317 million in LAD's case. Molson Coors Beverage Company (NYSE:TAP) is the most popular stock in this table. On the other hand Bright Horizons Family Solutions Inc (NYSE:BFAM) is the least popular one with only 18 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 80.5. 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 19.3% in 2021 through June 25th and still beat the market by 4.8 percentage points. Unfortunately LAD wasn't nearly as popular as these 5 stocks and hedge funds that were betting on LAD were disappointed as the stock returned -12.3% since the end of the first quarter (through 6/25) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as most of these stocks already outperformed the market since 2019.

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