Technology stocks had a lousy start to 2022. QQQ lost 9% of its value in January. Pandemic winners are getting crushed while energy stocks are surging. Roblox lost 36%, Moderna lost 33%, and Carvana and Shopify lost 30% of their values in January. We aren’t certain about the bubbly technology stocks that trade for ridiculously high multiples of their revenues, but we believe top hedge fund stocks will deliver positive returns for the rest of the year. In this article, we will take a closer look at hedge fund sentiment towards CarMax Inc (NYSE:KMX) at the end of the third quarter and determine whether the smart money was really smart about this stock.
CarMax Inc (NYSE:KMX) was in 36 hedge funds’ portfolios at the end of September. The all time high for this statistic is 54. KMX investors should be aware of a decrease in activity from the world’s largest hedge funds in recent months. There were 39 hedge funds in our database with KMX holdings at the end of June. Our calculations also showed that KMX isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).
Thomas Bancroft of Makaira Partners
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now we’re going to check out the new hedge fund action encompassing CarMax Inc (NYSE:KMX).
Do Hedge Funds Think KMX Is A Good Stock To Buy Now?
Heading into the fourth quarter of 2021, a total of 36 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -8% from the previous quarter. By comparison, 54 hedge funds held shares or bullish call options in KMX a year ago. With hedge funds’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).
Among these funds, Akre Capital Management held the most valuable stake in CarMax Inc (NYSE:KMX), which was worth $909.7 million at the end of the third quarter. On the second spot was Giverny Capital which amassed $148.4 million worth of shares. Wallace R. Weitz & Co., Silver Heights Capital Management, and Makaira Partners were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Silver Heights Capital Management allocated the biggest weight to CarMax Inc (NYSE:KMX), around 20.65% of its 13F portfolio. Lansing Management is also relatively very bullish on the stock, earmarking 12.62 percent of its 13F equity portfolio to KMX.
Since CarMax Inc (NYSE:KMX) has faced a decline in interest from the smart money, it’s safe to say that there were a few hedge funds that decided to sell off their full holdings by the end of the third quarter. Interestingly, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital dumped the biggest stake of the “upper crust” of funds watched by Insider Monkey, worth an estimated $38.1 million in stock, and Phill Gross and Robert Atchinson’s Adage Capital Management was right behind this move, as the fund said goodbye to about $22.9 million worth. These transactions are important to note, as aggregate hedge fund interest fell by 3 funds by the end of the third quarter.
Let’s now review hedge fund activity in other stocks similar to CarMax Inc (NYSE:KMX). We will take a look at Cerner Corporation (NASDAQ:CERN), Ameren Corporation (NYSE:AEE), CGI Inc. (NYSE:GIB), Charles River Laboratories International Inc. (NYSE:CRL), Essex Property Trust Inc (NYSE:ESS), MGM Resorts International (NYSE:MGM), and Trimble Inc. (NASDAQ:TRMB). This group of stocks’ market values are closest to KMX’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| CERN | 36 | 1279936 | -2 |
| AEE | 14 | 298780 | -9 |
| GIB | 18 | 336354 | 4 |
| CRL | 46 | 1294531 | 2 |
| ESS | 21 | 264061 | 0 |
| MGM | 50 | 2740827 | -9 |
| TRMB | 34 | 1814792 | 7 |
| Average | 31.3 | 1147040 | -1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 31.3 hedge funds with bullish positions and the average amount invested in these stocks was $1147 million. That figure was $1544 million in KMX’s case. MGM Resorts International (NYSE:MGM) is the most popular stock in this table. On the other hand Ameren Corporation (NYSE:AEE) is the least popular one with only 14 bullish hedge fund positions. CarMax Inc (NYSE:KMX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for KMX is 52.6. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, KMX wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on KMX were disappointed as the stock returned -13.1% since the end of September (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.
