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Here’s Why LKQ Corporation (LKQ) Stock is an Attractive Pick for Investors

Alex Smith
·3 mins read

Bonsai Partners recently released its Q2 2020 Investor Letter, a copy of which you can download here. The fund posted a return of 101.8% for the quarter (net of fees), outperforming their benchmark, the S&P 500 Index which returned 20.5% in the same quarter. You should check out Bonsai Partners' top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash.

In the said letter, Bonsai Partners highlighted a few stocks and LKQ Corp (NASDAQ:LKQ) is one of them. LKQ Corp (NASDAQ:LKQ) offers automotive products and services. Year-to-date, LKQ Corp (NASDAQ:LKQ) stock lost 12.2% and on August 17th it had a closing price of $31.33. Here is what Bonsai Partners said:

"LKQ is the largest provider of alternative collision and mechanical automotive parts in the United States. In Europe, they are the leading distributor of general automotive maintenance parts and supplies.

LKQ shares appreciated ~28% during the quarter.

Similar to Travelsky, LKQ is a COVID recovery story. The company indicated that each week since its trough in April their sales have been sequentially improving, albeit at levels still below that of 2019.

LKQ is the only business we own that has a vulnerable balance sheet, so I was pleased that the company was able to renegotiate its debt covenants with lenders during the quarter. This development adds operating flexibility and insulates against potential new challenges. LKQ’s covenants were my single largest concern when I invested, so this was a much-welcomed development.

I remain enthusiastic about LKQ because it is a counter-cyclical business that benefits from recession-like conditions if one comes to pass. Further, as COVID makes public transportation a less viable option, private vehicle traffic will see increased usage, benefitting LKQ. As the company gets back on track, it will once again resume its operational improvement plan and go back to reducing its debt."

In Q1 2020, the number of bullish hedge fund positions on LKQ Corp (NASDAQ:LKQ) stock decreased by about 21% from the previous quarter (see the chart here), so a number of other hedge fund managers don't seem to agree with LKQ's growth potential. Our calculations showed that LKQ Corp (NASDAQ:LKQ) isn't ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds' poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Cannabis stocks are roaring back in 2020, so we are checking out this under-the-radar stock. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. You can subscribe to our free enewsletter below to receive our stories in your inbox:

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