We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. Insider Monkey finished processing 835 13F filings submitted by hedge funds and prominent investors. These filings show these funds’ portfolio positions as of December 31st, 2019. What do these smart investors think about AutoNation, Inc. (NYSE:AN)?
Is AutoNation, Inc. (NYSE:AN) worth your attention right now? Prominent investors are in a bullish mood. The number of long hedge fund bets moved up by 7 in recent months. Our calculations also showed that AN isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.
Edward Lampert of ESL Investments
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a look at the new hedge fund action regarding AutoNation, Inc. (NYSE:AN).
What have hedge funds been doing with AutoNation, Inc. (NYSE:AN)?
At the end of the fourth quarter, a total of 31 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 29% from the third quarter of 2019. By comparison, 22 hedge funds held shares or bullish call options in AN a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were upping their holdings significantly (or already accumulated large positions).
The largest stake in AutoNation, Inc. (NYSE:AN) was held by Arlington Value Capital, which reported holding $130.8 million worth of stock at the end of September. It was followed by ESL Investments with a $116.6 million position. Other investors bullish on the company included AQR Capital Management, GAMCO Investors, and Winton Capital Management. In terms of the portfolio weights assigned to each position ESL Investments allocated the biggest weight to AutoNation, Inc. (NYSE:AN), around 57.47% of its 13F portfolio. Arlington Value Capital is also relatively very bullish on the stock, dishing out 8.89 percent of its 13F equity portfolio to AN.
As industrywide interest jumped, some big names have jumped into AutoNation, Inc. (NYSE:AN) headfirst. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, created the most valuable position in AutoNation, Inc. (NYSE:AN). Arrowstreet Capital had $14 million invested in the company at the end of the quarter. Israel Englander’s Millennium Management also made a $7.4 million investment in the stock during the quarter. The other funds with brand new AN positions are Noam Gottesman’s GLG Partners, Paul Tudor Jones’s Tudor Investment Corp, and Brandon Haley’s Holocene Advisors.
Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as AutoNation, Inc. (NYSE:AN) but similarly valued. These stocks are MSC Industrial Direct Co Inc (NYSE:MSM), BridgeBio Pharma, Inc. (NASDAQ:BBIO), nVent Electric plc (NYSE:NVT), and CIT Group Inc. (NYSE:CIT). This group of stocks’ market caps are similar to AN’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| MSM | 30 | 252552 | 6 |
| BBIO | 11 | 1324595 | -1 |
| NVT | 28 | 728891 | 5 |
| CIT | 35 | 956120 | 6 |
| Average | 26 | 815540 | 4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 26 hedge funds with bullish positions and the average amount invested in these stocks was $816 million. That figure was $410 million in AN’s case. CIT Group Inc. (NYSE:CIT) is the most popular stock in this table. On the other hand BridgeBio Pharma, Inc. (NASDAQ:BBIO) is the least popular one with only 11 bullish hedge fund positions. AutoNation, Inc. (NYSE:AN) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately AN wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on AN were disappointed as the stock returned -35.7% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
