Do Hedge Funds Love IAA, Inc. (IAA)?

In this article you are going to find out whether hedge funds think IAA, Inc. (NYSE:IAA) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

IAA, Inc. (NYSE:IAA) shareholders have witnessed an increase in support from the world’s most elite money managers of late. Our calculations also showed that IAA 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 financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 87% since March 2017 and outperformed the S&P 500 ETFs by more than 51 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Thomas Bancroft - Makaira Partners

Thomas Bancroft of Makaira Partners

At Insider Monkey 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 interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. 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 the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to take a gander at the latest hedge fund action encompassing IAA, Inc. (NYSE:IAA).

How have hedgies been trading IAA, Inc. (NYSE:IAA)?

At the end of the first quarter, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of 5% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards IAA over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in IAA, Inc. (NYSE:IAA) was held by Third Point, which reported holding $194.7 million worth of stock at the end of September. It was followed by Melvin Capital Management with a $146.1 million position. Other investors bullish on the company included D E Shaw, Cardinal Capital, and Candlestick Capital Management. In terms of the portfolio weights assigned to each position Clearfield Capital allocated the biggest weight to IAA, Inc. (NYSE:IAA), around 12.67% of its 13F portfolio. SkyTop Capital Management is also relatively very bullish on the stock, designating 6.37 percent of its 13F equity portfolio to IAA.

As aggregate interest increased, key money managers have jumped into IAA, Inc. (NYSE:IAA) headfirst. Clearfield Capital, managed by Philip Hilal, initiated the most outsized position in IAA, Inc. (NYSE:IAA). Clearfield Capital had $18.7 million invested in the company at the end of the quarter. Thomas Bancroft’s Makaira Partners also made a $14.1 million investment in the stock during the quarter. The following funds were also among the new IAA investors: Mark Kingdon’s Kingdon Capital, Zach Petrone’s Highside Global Management, and Renaissance Technologies.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as IAA, Inc. (NYSE:IAA) but similarly valued. We will take a look at Enphase Energy Inc (NASDAQ:ENPH), CDK Global Inc (NASDAQ:CDK), ITT Inc. (NYSE:ITT), and Lancaster Colony Corporation (NASDAQ:LANC). This group of stocks’ market valuations are closest to IAA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ENPH 35 370199 -4
CDK 24 180742 -1
ITT 28 373059 0
LANC 23 180392 7
Average 27.5 276098 0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.5 hedge funds with bullish positions and the average amount invested in these stocks was $276 million. That figure was $805 million in IAA’s case. Enphase Energy Inc (NASDAQ:ENPH) is the most popular stock in this table. On the other hand Lancaster Colony Corporation (NASDAQ:LANC) is the least popular one with only 23 bullish hedge fund positions. Compared to these stocks IAA, Inc. (NYSE:IAA) 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 8.3% in 2020 through the end of May but still managed to beat the market by 13.2 percentage points. Hedge funds were also right about betting on IAA as the stock returned 36.8% so far in Q2 (through the end of May) 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.