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Bill Gates’ Cascade Investment Boosts AutoNation Inc. (AN) Stake, Buffett Keeps Buying Phillips 66 (PSX), Plus Baker Bros.’ Latest Move

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According to statistics from Hedge Fund Research, the average hedge fund lost 2.76% in January, compared to a decline of approximately 5% for the S&P 500 benchmark, so hedge funds did outperform the broader market during the challenging month. And while several extremely successful hedge fund managers are doing very poorly thus far in 2016, investors should remember that investing is a marathon, not a sprint. There is a camp of smart money investors that has been able to deliver spectacular performance on a consistent basis, while others have had both ups and downs over the years. Even so, monitoring what hedge fund managers are doing might enable individual investors to think outside the box and identify new high-potential investment opportunities. For that reason, the following article will discuss three filings that were recently submitted with the SEC by several widely-known investment vehicles.

At Insider Monkey, we track around 730 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).

According to a Form 4 filing, Cascade Investment LLC, an asset management firm owned by billionaire Bill Gates, bought 539.262 shares of AutoNation Inc. (NYSE:AN) on Friday at prices ranging from $45.48 to $46.85 per share, lifting its overall position to 17.66 million shares. Cascade bought an additional 273,951 shares a day earlier, as revealed by a separate Form 4 filing. A 13D, also recently released, reveals that the Bill & Melinda Gates Foundation Trust owns an additional 1.90 million shares of the automotive retailer, so the two entities managed by Michael Larson aggregately own 19.56 million shares of the company, which account for 17.7% of its outstanding common stock.

AutoNation has seen its shares plummet by more than 20% since the beginning of the year, partly owing to worries about the Fed’s tightening monetary policy and a potential decline in auto sales in the upcoming years. The company’s new and used vehicle margins dropped by $217 per vehicle on a combined basis in the fourth quarter, presumably because of discounts from manufacturers to boost sales. At the same time, AutoNation Inc. (NYSE:AN)’s new vehicle inventories on a same-store basis grew by 13% year-over-year due to a 49% increase in Premium Luxury inventories. U.S auto sales reached a record of 17.47 million vehicles last year, primarily due to lower gasoline prices and robust economic growth. Even though many believe that auto sales might have peaked already, AutoNation’s management anticipates that the auto industry will exceed 17 million in new vehicle unit sales this year. Meanwhile,AutoNation shares trade at a cheap forward P/E multiple of 9.94, well below the 16.70 average for the consumer discretionary industry. James Dondero’s Highland Capital Management reported owning 106,546 shares of AutoNation Inc. (NYSE:AN) through its 13F filing for the fourth quarter.

Michael Larson
Michael Larson
Bill & Melinda Gates Foundation Trust

The second page of this article discusses the two separate filings submitted by billionaire Warren Buffett and a widely-known healthcare-focused hedge fund.

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