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Is LKQ Corporation (LKQ) Going to Burn These Hedge Funds?

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In this article we will take a look at whether hedge funds think LKQ Corporation (NASDAQ:LKQ) 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.

LKQ Corporation (NASDAQ:LKQ) was in 36 hedge funds' portfolios at the end of the first quarter of 2021. The all time high for this statistic is 52. LKQ investors should pay attention to a decrease in support from the world's most elite money managers in recent months. There were 50 hedge funds in our database with LKQ holdings at the end of December. Our calculations also showed that LKQ 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.

Jeff Ubben VALUEACT CAPITAL
Jeff Ubben VALUEACT CAPITAL

Jeffrey Ubben of ValueAct Capital

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 let's take a look at the latest hedge fund action surrounding LKQ Corporation (NASDAQ:LKQ).

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

At the end of the first quarter, a total of 36 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -28% from the previous quarter. By comparison, 41 hedge funds held shares or bullish call options in LKQ a year ago. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in LKQ Corporation (NASDAQ:LKQ) was held by ValueAct Capital, which reported holding $912.1 million worth of stock at the end of December. It was followed by Eminence Capital with a $141.7 million position. Other investors bullish on the company included Atalan Capital, AQR Capital Management, and 12th Street Asset Management. In terms of the portfolio weights assigned to each position ValueAct Capital allocated the biggest weight to LKQ Corporation (NASDAQ:LKQ), around 10.65% of its 13F portfolio. Hudson Way Capital Management is also relatively very bullish on the stock, setting aside 8.78 percent of its 13F equity portfolio to LKQ.

Seeing as LKQ Corporation (NASDAQ:LKQ) has experienced falling interest from the smart money, logic holds that there were a few hedge funds who were dropping their positions entirely heading into Q2. Intriguingly, Scott Ferguson's Sachem Head Capital sold off the largest investment of all the hedgies watched by Insider Monkey, valued at an estimated $112.8 million in stock. Charles de Vaulx's fund, International Value Advisers, also cut its stock, about $71.1 million worth. These moves are interesting, as aggregate hedge fund interest fell by 14 funds heading into Q2.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as LKQ Corporation (NASDAQ:LKQ) but similarly valued. These stocks are Packaging Corporation Of America (NYSE:PKG), UWM Holdings Corporation (NYSE:UWMC), Textron Inc. (NYSE:TXT), Masimo Corporation (NASDAQ:MASI), Teva Pharmaceutical Industries Limited (NYSE:TEVA), InterContinental Hotels Group PLC (NYSE:IHG), and XPO Logistics Inc (NYSE:XPO). All of these stocks' market caps are similar to LKQ's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position PKG,29,245296,13 UWMC,19,76660,19 TXT,21,702168,-2 MASI,35,308604,6 TEVA,24,1119017,-2 IHG,8,19947,1 XPO,40,2685320,0 Average,25.1,736716,5 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.1 hedge funds with bullish positions and the average amount invested in these stocks was $737 million. That figure was $1543 million in LKQ's case. XPO Logistics Inc (NYSE:XPO) is the most popular stock in this table. On the other hand InterContinental Hotels Group PLC (NYSE:IHG) is the least popular one with only 8 bullish hedge fund positions. LKQ Corporation (NASDAQ:LKQ) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LKQ is 55.5. 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. Hedge funds were also right about betting on LKQ as the stock returned 17.8% since the end of Q1 (through 6/25) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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