Hedge Funds Are Overweight Car Dealership Stocks

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A large number of public companies listed on US exchanges do business all over the world, getting a large chunk of their revenues from non-US markets. While this diversification helps them to balance out their top-line when the US economy is experiencing a turmoil, it also backfires at times, especially when the greenback is strong. That’s because their financial reporting is denominated in the US dollar and in spite of sound hedging practices, the volatility in the Forex markets can sometimes severely impact their numbers. For investors who don’t want their investments to be at the mercy of the Forex markets, stocks in the car dealership space represent one of the best opportunities that are available on the market today. However, that’s not the only reason to invest in stocks related to car dealership industry currently. With the auto industry in its best shape in decades, interest rates projected to be hiked at a nominal pace and the consistent growth in the labor market, most analysts and industry experts have a very favorable outlook on such stocks at this point in time. Considering that, in this post, we will take a look at five stocks related to the car dealership industry which the hedge funds covered by us were collectively most bullish while heading into the second quarter.

Our backtests that covered the period between 1999 and 2012, showed that following the 15 most popular small-caps among hedge funds can help a retail investor beat the market by an average of 95 basis points per month (see more details here).

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#5 Murphy USA Inc (NYSE:MUSA)

 – Investors with long positions (as of March 31): 21

– Aggregate value of investors’ holdings (as of March 31): $213.30 million

The number of hedge funds covered by us long Murphy USA Inc (NYSE:MUSA) inched up by two and the aggregate value of their holdings increased by $22.8 million during the first quarter. Funds that reduced their stake in the Arizona-based company during that period included Cliff Asness‘s AQR Capital Management, which brought down its holding by 7% to 934,481 shares, but still remained the largest shareholder of Murphy USA Inc (NYSE:MUSA) among funds covered by us, at the end of March. Shares of the retail motor fuel products marketer suffered a 20% drop in the period between April and August last year. However, they have recouped nearly all of those losses since then and are currently trading up 13% for 2016. On June 9, analysts at Jefferies Group reiterated their ‘Buy’ rating on the stock while boosting their price target to $82 from $76, which represents a potential upside of over 17% from the stock’s last trading price.

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#4 CST Brands Inc (NYSE:CST)

 – Investors with long positions (as of March 31): 28

– Aggregate value of investors’ holdings (as of March 31): $725.11 million

CST Brands Inc (NYSE:CST)’s stock saw a large spike earlier this month after Reuters reported that Japan’s Seven & I Holdings and Canada’s Alimentation Couche-Tard have submitted indicative offers to acquire the company. Owing largely to that spike, shares of the convenience store retailer are currently trading up by almost 10% year-to-date.  During the first quarter, the ownership of CST Brands Inc (NYSE:CST) among hedge funds covered by us rose by five and the aggregate value of their holdings in it increased by $28.1 million. Notable investors that upped their stake in the company in that period included billionaire Mario Gabelli‘s GAMCO Investors, which boosted its holding by 18% to almost 2 million shares. According to M&A news website CTFN, CST Brands is currently reviewing the offers it has received and might go ahead with a deal if a buyer offers $50 per share or more.

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