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CarMax, Inc (NYSE:KMX): Are Hedge Funds Right About This Stock?

CarMax, Inc (NYSE:KMX) was in 24 hedge funds’ portfolio at the end of the fourth quarter of 2012. KMX investors should pay attention to an increase in hedge fund interest recently. There were 14 hedge funds in our database with KMX holdings at the end of the previous quarter.

Bullish options in play as CarMax shares pop

To most investors, hedge funds are perceived as underperforming, outdated investment vehicles of yesteryear. While there are more than 8000 funds with their doors open at the moment, we choose to focus on the crème de la crème of this group, around 450 funds. It is estimated that this group controls the lion’s share of the smart money’s total asset base, and by keeping an eye on their top equity investments, we have formulated a number of investment strategies that have historically outperformed the S&P 500 index. Our small-cap hedge fund strategy outstripped the S&P 500 index by 18 percentage points per year for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outpaced the S&P 500 index by 25 percentage points in 6.5 month (explore the details and some picks here).

Just as important, bullish insider trading sentiment is another way to parse down the financial markets. Obviously, there are a variety of stimuli for a bullish insider to drop shares of his or her company, but only one, very simple reason why they would buy. Plenty of academic studies have demonstrated the valuable potential of this tactic if investors know what to do (learn more here).

With these “truths” under our belt, let’s take a glance at the latest action surrounding CarMax, Inc (NYSE:KMX).

What does the smart money think about CarMax, Inc (NYSE:KMX)?

At the end of the fourth quarter, a total of 24 of the hedge funds we track were bullish in this stock, a change of 71% from one quarter earlier. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were upping their stakes meaningfully.

According to our comprehensive database, Tom Gayner’s Markel Gayner Asset Management had the most valuable position in CarMax, Inc (NYSE:KMX), worth close to $193 million, comprising 8% of its total 13F portfolio. On Markel Gayner Asset Management’s heels is SAC Capital Advisors, managed by Steven Cohen, which held a $67 million position; 0.3% of its 13F portfolio is allocated to the stock. Remaining hedge funds that are bullish include Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital, Jeffrey Vinik’s Vinik Asset Management and Michael Karsch’s Karsch Capital Management.

As aggregate interest increased, key hedge funds were leading the bulls’ herd. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the most valuable position in CarMax, Inc (NYSE:KMX). Arrowstreet Capital had 63 million invested in the company at the end of the quarter. Ken Griffin’s Citadel Investment Group also initiated a $19 million position during the quarter. The following funds were also among the new KMX investors: Joe DiMenna’s ZWEIG DIMENNA PARTNERS, SAC Subsidiary’s Sigma Capital Management, and Alexander Mitchell’s Scopus Asset Management.

How are insiders trading CarMax, Inc (NYSE:KMX)?

Insider trading activity, especially when it’s bullish, is most useful when the primary stock in question has seen transactions within the past 180 days. Over the latest 180-day time period, CarMax, Inc (NYSE:KMX) has experienced 2 unique insiders buying, and 13 insider sales (see the details of insider trades here).

With the returns demonstrated by Insider Monkey’s research, everyday investors should always watch hedge fund and insider trading sentiment, and CarMax, Inc (NYSE:KMX) is an important part of this process.

Click here to learn more about Insider Monkey’s Hedge Fund Newsletter

Insider Monkey’s small-cap strategy returned 29.2% between September 2012 and February 2013 versus 8.7% for the S&P 500 index. Try it now by clicking the link above.

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