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While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus talks, many smart money investors are starting to get cautious towards the current bull run since March and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 30,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Penske Automotive Group, Inc. (NYSE:PAG).
Is PAG a good stock to buy now? Penske Automotive Group, Inc. (NYSE:PAG) investors should be aware of a decrease in hedge fund interest of late. Penske Automotive Group, Inc. (NYSE:PAG) was in 18 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 29. Our calculations also showed that PAG 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.
If you'd ask most stock holders, hedge funds are seen as slow, old financial tools of years past. While there are greater than 8000 funds with their doors open today, Our researchers choose to focus on the leaders of this group, around 850 funds. Most estimates calculate that this group of people preside over the lion's share of the hedge fund industry's total capital, and by keeping track of their first-class equity investments, Insider Monkey has uncovered various investment strategies that have historically outrun the S&P 500 index. Insider Monkey's flagship short hedge fund strategy outpaced the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 13% since February 2017 (through November 17th) even though the market was up 65% during the same period. We just shared a list of 6 short targets in our latest quarterly update .
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost real estate prices. So, we recommended this real estate stock to our monthly premium newsletter subscribers. We go through lists like the 15 best blue chip stocks 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. Keeping this in mind let's review the fresh hedge fund action encompassing Penske Automotive Group, Inc. (NYSE:PAG).
Do Hedge Funds Think PAG Is A Good Stock To Buy Now?
At third quarter's end, a total of 18 of the hedge funds tracked by Insider Monkey were long this stock, a change of -14% from the previous quarter. By comparison, 17 hedge funds held shares or bullish call options in PAG a year ago. With the smart money's capital changing hands, there exists an "upper tier" of key hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).
More specifically, AQR Capital Management was the largest shareholder of Penske Automotive Group, Inc. (NYSE:PAG), with a stake worth $32.2 million reported as of the end of September. Trailing AQR Capital Management was GAMCO Investors, which amassed a stake valued at $24.1 million. Horizon Asset Management, Arrowstreet Capital, and Capital Growth Management 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 Capital Growth Management allocated the biggest weight to Penske Automotive Group, Inc. (NYSE:PAG), around 0.75% of its 13F portfolio. Horizon Asset Management is also relatively very bullish on the stock, earmarking 0.5 percent of its 13F equity portfolio to PAG.
Due to the fact that Penske Automotive Group, Inc. (NYSE:PAG) has experienced declining sentiment from the entirety of the hedge funds we track, it's easy to see that there exists a select few funds who were dropping their entire stakes in the third quarter. Interestingly, Renaissance Technologies dropped the largest investment of the 750 funds tracked by Insider Monkey, valued at about $2 million in stock. Paul Tudor Jones's fund, Tudor Investment Corp, also said goodbye to its stock, about $1.8 million worth. These transactions are intriguing to say the least, as total hedge fund interest dropped by 3 funds in the third quarter.
Let's check out hedge fund activity in other stocks - not necessarily in the same industry as Penske Automotive Group, Inc. (NYSE:PAG) but similarly valued. We will take a look at National General Holdings Corp (NASDAQ:NGHC), ICU Medical, Inc. (NASDAQ:ICUI), Tenable Holdings, Inc. (NASDAQ:TENB), Regal Beloit Corporation (NYSE:RBC), Builders FirstSource, Inc. (NASDAQ:BLDR), Aaron's, Inc. (NYSE:AAN), and WillScot Mobile Mini Holdings Corp. (NASDAQ:WSC). This group of stocks' market caps are closest to PAG's market cap.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position NGHC,25,489741,8 ICUI,31,295797,-1 TENB,30,490303,8 RBC,25,241763,3 BLDR,38,616896,6 AAN,39,387786,12 WSC,36,574305,5 Average,32,442370,5.9 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 32 hedge funds with bullish positions and the average amount invested in these stocks was $442 million. That figure was $107 million in PAG's case. Aaron's, Inc. (NYSE:AAN) is the most popular stock in this table. On the other hand National General Holdings Corp (NASDAQ:NGHC) is the least popular one with only 25 bullish hedge fund positions. Compared to these stocks Penske Automotive Group, Inc. (NYSE:PAG) is even less popular than NGHC. Our overall hedge fund sentiment score for PAG is 20.6. 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. Hedge funds clearly dropped the ball on PAG as the stock delivered strong returns, though hedge funds' consensus picks still generated respectable returns. 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 gained 30.7% in 2020 through December 14th and still beat the market by 15.8 percentage points. A small number of hedge funds were also right about betting on PAG as the stock returned 19.9% since Q3 (through December 14th) and outperformed the market by an even larger margin.
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Disclosure: None. This article was originally published at Insider Monkey.