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Hedge Funds Are Dumping Penske Automotive Group, Inc. (PAG)

In this article you are going to find out whether hedge funds think Penske Automotive Group, Inc. (NYSE:PAG) 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.

Penske Automotive Group, Inc. (NYSE:PAG) was in 19 hedge funds’ portfolios at the end of the first quarter of 2020. PAG shareholders have witnessed a decrease in support from the world’s most elite money managers recently. There were 29 hedge funds in our database with PAG positions at the end of the previous quarter. Our calculations also showed that PAG 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.

AQR CAPITAL MANAGEMENT

Cliff Asness of AQR Capital Management

We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. 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 let’s check out the latest hedge fund action encompassing Penske Automotive Group, Inc. (NYSE:PAG).

Hedge fund activity in Penske Automotive Group, Inc. (NYSE:PAG)

Heading into the second quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey were long this stock, a change of -34% from the fourth quarter of 2019. The graph below displays the number of hedge funds with bullish position in PAG 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.

Among these funds, GAMCO Investors held the most valuable stake in Penske Automotive Group, Inc. (NYSE:PAG), which was worth $14.2 million at the end of the third quarter. On the second spot was Citadel Investment Group which amassed $13.3 million worth of shares. Millennium Management, Arrowstreet Capital, and AQR Capital Management 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 Moon Capital allocated the biggest weight to Penske Automotive Group, Inc. (NYSE:PAG), around 0.52% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, earmarking 0.17 percent of its 13F equity portfolio to PAG.

Judging by the fact that Penske Automotive Group, Inc. (NYSE:PAG) has faced bearish sentiment from the smart money, it’s safe to say that there is a sect of money managers that elected to cut their full holdings by the end of the first quarter. Intriguingly, Minhua Zhang’s Weld Capital Management dropped the largest investment of all the hedgies monitored by Insider Monkey, worth an estimated $0.8 million in stock, and Charles Davidson and Joseph Jacobs’s Wexford Capital was right behind this move, as the fund sold off about $0.7 million worth. These moves are important to note, as total hedge fund interest was cut by 10 funds by the end of the first quarter.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as Penske Automotive Group, Inc. (NYSE:PAG) but similarly valued. We will take a look at Cloudera, Inc. (NYSE:CLDR), Atlantica Sustainable Infrastructure plc (NASDAQ:AY), Brooks Automation, Inc. (NASDAQ:BRKS), and Mercury General Corporation (NYSE:MCY). All of these stocks’ market caps match PAG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
CLDR 26 583741 4
AY 13 77287 -3
BRKS 18 98547 -10
MCY 22 193565 1
Average 19.75 238285 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $238 million. That figure was $69 million in PAG’s case. Cloudera, Inc. (NYSE:CLDR) is the most popular stock in this table. On the other hand Atlantica Sustainable Infrastructure plc (NASDAQ:AY) is the least popular one with only 13 bullish hedge fund positions. Penske Automotive Group, Inc. (NYSE:PAG) is not the least popular stock in this group but hedge fund interest is still below average. 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 13.4% in 2020 through June 22nd and still beat the market by 15.9 percentage points. A small number of hedge funds were also right about betting on PAG as the stock returned 39.4% during 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.