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Should You Buy Lithia Motors Inc (LAD)?: Rush Enterprises, Inc. (RUSHB), KAR Auction Services Inc (KAR)

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Lithia Motors Inc (NYSE:LAD) has experienced an increase in enthusiasm from smart money lately.

Lithia Motors Inc (NYSE:LAD)

If you’d ask most traders, hedge funds are viewed as unimportant, outdated financial vehicles of years past. While there are greater than 8000 funds in operation today, we at Insider Monkey choose to focus on the bigwigs of this group, about 450 funds. It is widely believed that this group controls most of the hedge fund industry’s total asset base, and by paying attention to their top picks, we have uncovered a few investment strategies that have historically beaten the market. Our small-cap hedge fund strategy outperformed the S&P 500 index by 18 percentage points a 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 outclassed the S&P 500 index by 24 percentage points in 7 months (check out a sample of our picks).

Just as beneficial, optimistic insider trading sentiment is a second way to break down the stock market universe. There are lots of stimuli for an insider to drop shares of his or her company, but just one, very simple reason why they would behave bullishly. Plenty of empirical studies have demonstrated the useful potential of this method if shareholders know where to look (learn more here).

With all of this in mind, we’re going to take a look at the recent action encompassing Lithia Motors Inc (NYSE:LAD).

How are hedge funds trading Lithia Motors Inc (NYSE:LAD)?

At the end of the fourth quarter, a total of 15 of the hedge funds we track held long positions in this stock, a change of 25% from the previous quarter. With hedge funds’ sentiment swirling, there exists a few notable hedge fund managers who were upping their holdings meaningfully.

According to our comprehensive database, Adage Capital Management, managed by Phill Gross and Robert Atchinson, holds the largest position in Lithia Motors Inc (NYSE:LAD). Adage Capital Management has a $23 million position in the stock, comprising 0.1% of its 13F portfolio. On Adage Capital Management’s heels is Royce & Associates, managed by Chuck Royce, which held a $13.6 million position; the fund has less than 0.1%% of its 13F portfolio invested in the stock. Other hedgies with similar optimism include Drew Cupps’s Cupps Capital Management, Jeffrey Vinik’s Vinik Asset Management and D. E. Shaw’s D E Shaw.

As one would reasonably expect, key hedge funds were breaking ground themselves. Renaissance Technologies, managed by Jim Simons, assembled the biggest position in Lithia Motors Inc (NYSE:LAD). Renaissance Technologies had 3.8 million invested in the company at the end of the quarter. Andrew Sandler’s Sandler Capital Management also initiated a $1.3 million position during the quarter. The only other fund with a new position in the stock is Joel Greenblatt’s Gotham Asset Management.

What have insiders been doing with Lithia Motors Inc (NYSE:LAD)?

Bullish insider trading is at its handiest when the company we’re looking at has seen transactions within the past half-year. Over the last six-month time period, Lithia Motors Inc (NYSE:LAD) has experienced zero unique insiders purchasing, and 6 insider sales (see the details of insider trades here).

Let’s also review hedge fund and insider activity in other stocks similar to Lithia Motors Inc (NYSE:LAD). These stocks are Rush Enterprises, Inc. (NASDAQ:RUSHB), KAR Auction Services Inc (NYSE:KAR), Sonic Automotive Inc (NYSE:SAH), Group 1 Automotive, Inc. (NYSE:GPI), and Asbury Automotive Group, Inc. (NYSE:ABG). This group of stocks are the members of the auto dealerships industry and their market caps are closest to LAD’s market cap.

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