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Hedge Funds Are Changing Their Minds With Sonic Automotive Inc (SAH)

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards Sonic Automotive Inc (NYSE:SAH).

Sonic Automotive Inc (NYSE:SAH) investors should be aware of a decrease in support from the world’s most elite money managers in recent months. Our calculations also showed that SAH 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 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.

Peter Rathjens Arrowstreet Capital 394

Peter Rathjens of Arrowstreet Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, blockchain technology’s influence will go beyond online payments. So, we are checking out this futurist’s moonshot opportunities in tech stocks. We interview hedge fund managers and ask them about their best ideas. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. For example we are checking out stocks recommended/scorned by legendary Bill Miller. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February 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 new hedge fund action regarding Sonic Automotive Inc (NYSE:SAH).

What does smart money think about Sonic Automotive Inc (NYSE:SAH)?

Heading into the second quarter of 2020, a total of 14 of the hedge funds tracked by Insider Monkey were long this stock, a change of -13% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards SAH over the last 18 quarters. With hedge funds’ sentiment swirling, there exists a few noteworthy hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

Among these funds, Driehaus Capital held the most valuable stake in Sonic Automotive Inc (NYSE:SAH), which was worth $4.7 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $2.7 million worth of shares. AQR Capital Management, Marshall Wace LLP, and Citadel Investment Group 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 Driehaus Capital allocated the biggest weight to Sonic Automotive Inc (NYSE:SAH), around 0.16% of its 13F portfolio. PDT Partners is also relatively very bullish on the stock, dishing out 0.07 percent of its 13F equity portfolio to SAH.

Since Sonic Automotive Inc (NYSE:SAH) has experienced bearish sentiment from hedge fund managers, it’s easy to see that there was a specific group of hedgies that elected to cut their full holdings last quarter. Interestingly, Lee Ainslie’s Maverick Capital said goodbye to the largest stake of all the hedgies tracked by Insider Monkey, comprising close to $2.9 million in stock, and Donald Sussman’s Paloma Partners was right behind this move, as the fund sold off about $0.4 million worth. These transactions are interesting, as aggregate hedge fund interest was cut by 2 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to Sonic Automotive Inc (NYSE:SAH). We will take a look at Community Trust Bancorp, Inc. (NASDAQ:CTBI), Silvercorp Metals Inc. (NYSE:SVM), Bryn Mawr Bank Corp. (NASDAQ:BMTC), and Urstadt Biddle Properties Inc (NYSE:UBA). This group of stocks’ market valuations resemble SAH’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CTBI 6 13575 0
SVM 5 31995 -3
BMTC 10 32250 1
UBA 8 26170 2
Average 7.25 25998 0

View table here if you experience formatting issues.

As you can see these stocks had an average of 7.25 hedge funds with bullish positions and the average amount invested in these stocks was $26 million. That figure was $18 million in SAH’s case. Bryn Mawr Bank Corp. (NASDAQ:BMTC) is the most popular stock in this table. On the other hand Silvercorp Metals Inc. (NYSE:SVM) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Sonic Automotive Inc (NYSE:SAH) 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 13.3% in 2020 through June 25th but still managed to beat the market by 16.8 percentage points. Hedge funds were also right about betting on SAH as the stock returned 130.2% so far in Q2 (through June 25th) 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.