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Hedge Funds Abandoned Credit Acceptance Corp. (CACC) During The Crash

In this article you are going to find out whether hedge funds think Credit Acceptance Corp. (NASDAQ:CACC) 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.

Is Credit Acceptance Corp. (NASDAQ:CACC) a bargain? The smart money is becoming less confident. The number of bullish hedge fund bets retreated by 9 recently. Our calculations also showed that CACC 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.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 58 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

David E. Shaw of D.E. Shaw

David E. Shaw of D.E. Shaw

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades 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. Keeping this in mind we’re going to review the fresh hedge fund action surrounding Credit Acceptance Corp. (NASDAQ:CACC).

What does smart money think about Credit Acceptance Corp. (NASDAQ:CACC)?

At the end of the first quarter, a total of 22 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -29% from one quarter earlier. By comparison, 28 hedge funds held shares or bullish call options in CACC a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is CACC A Good Stock To Buy?

The largest stake in Credit Acceptance Corp. (NASDAQ:CACC) was held by Gobi Capital, which reported holding $133.4 million worth of stock at the end of September. It was followed by BloombergSen with a $122.9 million position. Other investors bullish on the company included Cantillon Capital Management, Abrams Bison Investments, and Immersion Capital. In terms of the portfolio weights assigned to each position Billings Capital Management allocated the biggest weight to Credit Acceptance Corp. (NASDAQ:CACC), around 26.06% of its 13F portfolio. Abrams Bison Investments is also relatively very bullish on the stock, setting aside 19.56 percent of its 13F equity portfolio to CACC.

Seeing as Credit Acceptance Corp. (NASDAQ:CACC) has faced falling interest from the smart money, it’s easy to see that there was a specific group of money managers that decided to sell off their positions entirely in the first quarter. It’s worth mentioning that Ben Levine, Andrew Manuel and Stefan Renold’s LMR Partners said goodbye to the biggest investment of the 750 funds followed by Insider Monkey, worth about $44.9 million in stock. Jonathan Auerbach’s fund, Hound Partners, also said goodbye to its stock, about $39.1 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest fell by 9 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 Credit Acceptance Corp. (NASDAQ:CACC) but similarly valued. We will take a look at Tallgrass Energy, LP (NYSE:TGE), BWX Technologies Inc (NYSE:BWXT), Tech Data Corp (NASDAQ:TECD), and Old Republic International Corporation (NYSE:ORI). All of these stocks’ market caps are similar to CACC’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TGE 38 692822 7
BWXT 24 107937 2
TECD 39 797204 5
ORI 27 241456 7
Average 32 459855 5.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 32 hedge funds with bullish positions and the average amount invested in these stocks was $460 million. That figure was $581 million in CACC’s case. Tech Data Corp (NASDAQ:TECD) is the most popular stock in this table. On the other hand BWX Technologies Inc (NYSE:BWXT) is the least popular one with only 24 bullish hedge fund positions. Compared to these stocks Credit Acceptance Corp. (NASDAQ:CACC) is even less popular than BWXT. Hedge funds clearly dropped the ball on CACC as the stock delivered strong returns, though hedge funds’ consensus picks still generated respectable returns. 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 gained 13.9% in 2020 through June 10th and still beat the market by 14.2 percentage points. A small number of hedge funds were also right about betting on CACC as the stock returned 74.2% so far in the second quarter and outperformed the market by an even larger margin.

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