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Did Hedge Funds Make The Right Call On Cars.com Inc. (CARS) ?

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. We at Insider Monkey have plowed through 821 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of March 31st, a week after the market trough. We are almost done with the second quarter. Investors decided to bet on the economic recovery and a stock market rebound. S&P 500 Index returned almost 20% this quarter. In this article we look at how hedge funds traded Cars.com Inc. (NYSE:CARS) and determine whether the smart money was really smart about this stock.

Is Cars.com Inc. (NYSE:CARS) a sound investment right now? The best stock pickers were in a pessimistic mood. The number of bullish hedge fund positions fell by 10 lately. Our calculations also showed that CARS isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

In the 21st century investor’s toolkit there are a large number of methods investors employ to appraise their holdings. A couple of the most innovative methods are hedge fund and insider trading interest. Our experts have shown that, historically, those who follow the top picks of the best fund managers can outclass the S&P 500 by a superb margin (see the details here).

RENAISSANCE TECHNOLOGIES

Jim Simons of Renaissance Technologies

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, on one site we found out that NBA champion Isiah Thomas is now the CEO of this cannabis company. The same site also talks about a snack manufacturer that’s growing at 30% annually. 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. Hedge fund sentiment towards Tesla reached its all time high at the end of 2019 and Tesla shares more than tripled this year. We are trying to identify other EV revolution winners, so if you have any good ideas send us an email. Keeping this in mind let’s take a look at the latest hedge fund action surrounding Cars.com Inc. (NYSE:CARS).

How have hedgies been trading Cars.com Inc. (NYSE:CARS)?

Heading into the second quarter of 2020, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -29% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CARS over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is CARS A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, Greenvale Capital, managed by Bruce Emery, holds the biggest position in Cars.com Inc. (NYSE:CARS). Greenvale Capital has a $18.3 million position in the stock, comprising 4.8% of its 13F portfolio. The second most bullish fund manager is Baupost Group, led by Seth Klarman, holding a $12.9 million position; 0.2% of its 13F portfolio is allocated to the stock. Remaining professional money managers that hold long positions consist of Robert Pitts’s Steadfast Capital Management, Stephen Mildenhall’s Contrarius Investment Management and John Petry’s Sessa Capital. In terms of the portfolio weights assigned to each position Greenvale Capital allocated the biggest weight to Cars.com Inc. (NYSE:CARS), around 4.8% of its 13F portfolio. Rutabaga Capital Management is also relatively very bullish on the stock, dishing out 1.02 percent of its 13F equity portfolio to CARS.

Seeing as Cars.com Inc. (NYSE:CARS) has witnessed a decline in interest from the entirety of the hedge funds we track, we can see that there exists a select few funds who were dropping their entire stakes in the first quarter. It’s worth mentioning that Andrew Kurita’s Kettle Hill Capital Management dropped the biggest investment of all the hedgies monitored by Insider Monkey, comprising about $7.5 million in stock. Avi Fruchter’s fund, Anavon Capital, also cut its stock, about $4.1 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 10 funds in the first quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Cars.com Inc. (NYSE:CARS) but similarly valued. We will take a look at HBT Financial, Inc. (NASDAQ:HBT), TherapeuticsMD Inc (NASDAQ:TXMD), Pivotal Investment Corporation II (NYSE:PIC), and Oportun Financial Corporation (NASDAQ:OPRT). This group of stocks’ market values are similar to CARS’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HBT 7 7919 -3
TXMD 9 19669 -9
PIC 12 56180 -3
OPRT 8 3142 4
Average 9 21728 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $22 million. That figure was $68 million in CARS’s case. Pivotal Investment Corporation II (NYSE:PIC) is the most popular stock in this table. On the other hand HBT Financial, Inc. (NASDAQ:HBT) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Cars.com Inc. (NYSE:CARS) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 12.3% in 2020 through June 30th but still managed to beat the market by 15.5 percentage points. Hedge funds were also right about betting on CARS as the stock returned 34% in Q2 and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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