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Where Do Hedge Funds Stand On IAA, Inc. (IAA)?

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Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds' 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about IAA, Inc. (NYSE:IAA) in this article.

Is IAA, Inc. (NYSE:IAA) going to take off soon? Prominent investors were turning less bullish. The number of bullish hedge fund positions decreased by 2 in recent months. IAA, Inc. (NYSE:IAA) was in 33 hedge funds' portfolios at the end of June. The all time high for this statistic is 43. Our calculations also showed that IAA isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

At the moment there are a large number of tools shareholders use to analyze stocks. Some of the most underrated tools are hedge fund and insider trading signals. We have shown that, historically, those who follow the best picks of the top fund managers can beat the market by a very impressive margin (see the details here). Also, our monthly newsletter's portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

Gabriel Plotkin Melvin Capital Management
Gabriel Plotkin Melvin Capital Management

Gabriel Plotkin of Melvin Capital Management

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 EV 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 fresh hedge fund action surrounding IAA, Inc. (NYSE:IAA).

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

At Q2's end, a total of 33 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -6% from the first quarter of 2020. By comparison, 43 hedge funds held shares or bullish call options in IAA a year ago. With the smart money's sentiment swirling, there exists an "upper tier" of notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

Among these funds, Melvin Capital Management held the most valuable stake in IAA, Inc. (NYSE:IAA), which was worth $353.1 million at the end of the second quarter. On the second spot was Melvin Capital Management which amassed $136.4 million worth of shares. Gates Capital Management, Candlestick Capital Management, and Citadel Investment Group 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 Gates Capital Management allocated the biggest weight to IAA, Inc. (NYSE:IAA), around 3.48% of its 13F portfolio. Melvin Capital Management is also relatively very bullish on the stock, setting aside 2.03 percent of its 13F equity portfolio to IAA.

Because IAA, Inc. (NYSE:IAA) has witnessed falling interest from the aggregate hedge fund industry, it's safe to say that there was a specific group of fund managers that elected to cut their entire stakes last quarter. At the top of the heap, Dan Loeb's Third Point dumped the biggest position of the "upper crust" of funds tracked by Insider Monkey, totaling close to $479.6 million in stock. Zach Schreiber's fund, Point State Capital, also said goodbye to its stock, about $11.6 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest dropped by 2 funds last quarter.

Let's now take a look at hedge fund activity in other stocks similar to IAA, Inc. (NYSE:IAA). These stocks are Gildan Activewear Inc (NYSE:GIL), The New York Times Company (NYSE:NYT), The AZEK Company Inc. (NYSE:AZEK), Woori Financial Group Inc. (NYSE:WF), People's United Financial, Inc. (NASDAQ:PBCT), Casey's General Stores, Inc. (NASDAQ:CASY), and Coty Inc (NYSE:COTY). This group of stocks' market valuations match IAA's market valuation.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position GIL,19,726018,2 NYT,48,2224644,0 AZEK,37,407782,8 WF,2,3694,0 PBCT,24,219174,4 CASY,24,130468,13 COTY,30,381601,5 Average,26.3,584769,4.6 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.3 hedge funds with bullish positions and the average amount invested in these stocks was $585 million. That figure was $830 million in IAA's case. The New York Times Company (NYSE:NYT) is the most popular stock in this table. On the other hand Woori Financial Group Inc. (NYSE:WF) is the least popular one with only 2 bullish hedge fund positions. IAA, Inc. (NYSE:IAA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for IAA is 59.7. 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 24.9% in 2021 through October 15th and still beat the market by 4.5 percentage points. Hedge funds were also right about betting on IAA as the stock returned 5.6% since the end of Q2 (through 10/15) 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.