Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 of 2018 due to various reasons. Nevertheless, the data show elite investors' consensus picks have done well on average over the long-term. The top 20 stocks among hedge funds beat the S&P 500 Index ETFs by nearly 10 percentage points during the first 11 months of 2019. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at LKQ Corporation (NASDAQ:LKQ) from the perspective of those elite funds.
Is LKQ Corporation (NASDAQ:LKQ) a healthy stock for your portfolio? Prominent investors are becoming less confident. The number of long hedge fund bets dropped by 4 recently. Our calculations also showed that LKQ isn't among the 30 most popular stocks among hedge funds (click for Q3 rankings and see the video below for Q2 rankings). Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
In the financial world there are a large number of tools stock traders put to use to assess stocks. Some of the most under-the-radar tools are hedge fund and insider trading signals. We have shown that, historically, those who follow the best picks of the elite money managers can outpace the market by a significant amount (see the details here).
[caption id="attachment_30493" align="aligncenter" width="498"] Jeffrey Ubben of ValueAct Capital[/caption]
Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to take a look at the latest hedge fund action regarding LKQ Corporation (NASDAQ:LKQ).
What have hedge funds been doing with LKQ Corporation (NASDAQ:LKQ)?
Heading into the fourth quarter of 2019, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, a change of -9% from the second quarter of 2019. By comparison, 45 hedge funds held shares or bullish call options in LKQ a year ago. With the smart money's positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
According to Insider Monkey's hedge fund database, Jeffrey Ubben's ValueAct Capital has the biggest position in LKQ Corporation (NASDAQ:LKQ), worth close to $504.2 million, corresponding to 5.4% of its total 13F portfolio. The second most bullish fund manager is Southpoint Capital Advisors, led by John Smith Clark, holding a $169.8 million position; the fund has 6.4% of its 13F portfolio invested in the stock. Remaining professional money managers with similar optimism consist of Charles de Vaulx's International Value Advisers, David E. Shaw's D E Shaw and David Thomas's Atalan Capital. In terms of the portfolio weights assigned to each position Clearfield Capital allocated the biggest weight to LKQ Corporation (NASDAQ:LKQ), around 16.09% of its portfolio. 12th Street Asset Management is also relatively very bullish on the stock, earmarking 8.64 percent of its 13F equity portfolio to LKQ.
Because LKQ Corporation (NASDAQ:LKQ) has witnessed declining sentiment from hedge fund managers, logic holds that there was a specific group of funds that decided to sell off their entire stakes by the end of the third quarter. Interestingly, Lee Hicks and Jan Koerner's Park Presidio Capital cut the largest investment of the 750 funds monitored by Insider Monkey, comprising close to $53.2 million in stock, and Robert Pitts's Steadfast Capital Management was right behind this move, as the fund cut about $36.3 million worth. These transactions are intriguing to say the least, as aggregate hedge fund interest was cut by 4 funds by the end of the third quarter.
Let's go over hedge fund activity in other stocks similar to LKQ Corporation (NASDAQ:LKQ). We will take a look at Allegion plc (NYSE:ALLE), Aqua America Inc (NYSE:WTR), StoneCo Ltd. (NASDAQ:STNE), and Apache Corporation (NYSE:APA). This group of stocks' market valuations resemble LKQ's market valuation.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position ALLE,26,450412,2 WTR,33,832797,12 STNE,28,1337452,1 APA,26,692560,4 Average,28.25,828305,4.75 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 28.25 hedge funds with bullish positions and the average amount invested in these stocks was $828 million. That figure was $1409 million in LKQ's case. Aqua America Inc (NYSE:WTR) is the most popular stock in this table. On the other hand Allegion plc (NYSE:ALLE) is the least popular one with only 26 bullish hedge fund positions. Compared to these stocks LKQ Corporation (NASDAQ:LKQ) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 37.4% in 2019 through the end of November and outperformed the S&P 500 ETF (SPY) by 9.9 percentage points. Hedge funds were also right about betting on LKQ as the stock returned 12.2% during the first two months of Q4 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.