How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don't always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding CarParts.com, Inc. (NASDAQ:PRTS).
Is PRTS a good stock to buy now? CarParts.com, Inc. (NASDAQ:PRTS) shareholders have witnessed an increase in activity from the world's largest hedge funds lately. CarParts.com, Inc. (NASDAQ:PRTS) was in 22 hedge funds' portfolios at the end of the third quarter of 2020. The all time high for this statistic is 14. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. There were 14 hedge funds in our database with PRTS positions at the end of the second quarter. Our calculations also showed that PRTS 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.
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 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That's why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
J. Carlo Cannell of Cannell Capital
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 check out the recent hedge fund action surrounding CarParts.com, Inc. (NASDAQ:PRTS).
Do Hedge Funds Think PRTS Is A Good Stock To Buy Now?
At the end of September, a total of 22 of the hedge funds tracked by Insider Monkey were long this stock, a change of 57% from the previous quarter. The graph below displays the number of hedge funds with bullish position in PRTS over the last 21 quarters. So, let's review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of CarParts.com, Inc. (NASDAQ:PRTS), with a stake worth $38 million reported as of the end of September. Trailing Renaissance Technologies was G2 Investment Partners Management, which amassed a stake valued at $29.6 million. Park West Asset Management, Driehaus Capital, and Cannell 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 G2 Investment Partners Management allocated the biggest weight to CarParts.com, Inc. (NASDAQ:PRTS), around 7.15% of its 13F portfolio. Cannell Capital is also relatively very bullish on the stock, designating 4.31 percent of its 13F equity portfolio to PRTS.
With a general bullishness amongst the heavyweights, specific money managers were breaking ground themselves. Park West Asset Management, managed by Peter S. Park, established the largest position in CarParts.com, Inc. (NASDAQ:PRTS). Park West Asset Management had $24.7 million invested in the company at the end of the quarter. George McCabe's Portolan Capital Management also made a $6.7 million investment in the stock during the quarter. The following funds were also among the new PRTS investors: Jacob Doft's Highline Capital Management, Josh Donfeld and David Rogers's Castle Hook Partners, and Adam Usdan's Trellus Management Company.
Let's now review hedge fund activity in other stocks similar to CarParts.com, Inc. (NASDAQ:PRTS). These stocks are Great Southern Bancorp, Inc. (NASDAQ:GSBC), NGL Energy Partners LP (NYSE:NGL), Aprea Therapeutics, Inc. (NASDAQ:APRE), Berkshire Hills Bancorp, Inc. (NYSE:BHLB), United Fire Group, Inc. (NASDAQ:UFCS), Banc of California, Inc. (NYSE:BANC), and PBF Logistics LP (NYSE:PBFX). This group of stocks' market values are closest to PRTS's market value.
[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GSBC,7,20795,-3 NGL,2,695,-2 APRE,9,132886,-2 BHLB,13,20919,-4 UFCS,8,10565,2 BANC,13,32302,0 PBFX,3,2908,-1 Average,7.9,31581,-1.4 [/table]
View table here if you experience formatting issues.
As you can see these stocks had an average of 7.9 hedge funds with bullish positions and the average amount invested in these stocks was $32 million. That figure was $149 million in PRTS's case. Berkshire Hills Bancorp, Inc. (NYSE:BHLB) is the most popular stock in this table. On the other hand NGL Energy Partners LP (NYSE:NGL) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks CarParts.com, Inc. (NASDAQ:PRTS) is more popular among hedge funds. Our overall hedge fund sentiment score for PRTS 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 30.7% in 2020 through December 14th but still managed to beat the market by 15.8 percentage points. Hedge funds were also right about betting on PRTS as the stock returned 17.2% since the end of September (through 12/14) 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.