Hedge Funds Are Piling Into Sonic Automotive Inc (SAH)

In this article we are going to use hedge fund sentiment as a tool and determine whether Sonic Automotive Inc (NYSE:SAH) is a good investment right now. We like to analyze hedge fund sentiment before conducting days of in-depth research. We do so because hedge funds and other elite investors have numerous Ivy League graduates, expert network advisers, and supply chain tipsters working or consulting for them. There is not a shortage of news stories covering failed hedge fund investments and it is a fact that hedge funds’ picks don’t beat the market 100% of the time, but their consensus picks have historically done very well and have outperformed the market after adjusting for risk.

Sonic Automotive Inc (NYSE:SAH) investors should be aware of an increase in activity from the world’s largest hedge funds of late. Sonic Automotive Inc (NYSE:SAH) was in 26 hedge funds’ portfolios at the end of September. The all time high for this statistic was previously 20. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that SAH isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. Now let’s review the fresh hedge fund action encompassing Sonic Automotive Inc (NYSE:SAH).

Do Hedge Funds Think SAH Is A Good Stock To Buy Now?

At the end of the third quarter, a total of 26 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 30% from the second quarter of 2021. Below, you can check out the change in hedge fund sentiment towards SAH over the last 25 quarters. With hedgies’ sentiment swirling, there exists a few noteworthy hedge fund managers who were boosting their holdings substantially (or already accumulated large positions).

The largest stake in Sonic Automotive Inc (NYSE:SAH) was held by Teewinot Capital Advisers, which reported holding $30.2 million worth of stock at the end of September. It was followed by Millennium Management with a $25.3 million position. Other investors bullish on the company included Arrowstreet Capital, Intrinsic Edge Capital, and Citadel Investment Group. In terms of the portfolio weights assigned to each position Teewinot Capital Advisers allocated the biggest weight to Sonic Automotive Inc (NYSE:SAH), around 6.73% of its 13F portfolio. Callodine Capital Management is also relatively very bullish on the stock, earmarking 3.86 percent of its 13F equity portfolio to SAH.

As one would reasonably expect, specific money managers were breaking ground themselves. Intrinsic Edge Capital, managed by Mark Coe, created the most outsized position in Sonic Automotive Inc (NYSE:SAH). Intrinsic Edge Capital had $12.3 million invested in the company at the end of the quarter. Christian Leone’s Luxor Capital Group also initiated a $3.2 million position during the quarter. The following funds were also among the new SAH investors: Paul Marshall and Ian Wace’s Marshall Wace LLP, Blair Baker’s Precept Capital Management, and Gavin Saitowitz and Cisco J. del Valle’s Prelude Capital (previously Springbok Capital).

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Sonic Automotive Inc (NYSE:SAH) but similarly valued. These stocks are Gray Television, Inc. (NYSE:GTN), NanoString Technologies Inc (NASDAQ:NSTG), Liberty Oilfield Services Inc. (NYSE:LBRT), Columbia Property Trust Inc (NYSE:CXP), Harmony Biosciences Holdings, Inc. (NASDAQ:HRMY), JinkoSolar Holding Co., Ltd. (NYSE:JKS), and Ranpak Holdings Corp (NYSE:PACK). This group of stocks’ market values are closest to SAH’s market value.

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As you can see these stocks had an average of 16.6 hedge funds with bullish positions and the average amount invested in these stocks was $295 million. That figure was $156 million in SAH’s case. NanoString Technologies Inc (NASDAQ:NSTG) is the most popular stock in this table. On the other hand Liberty Oilfield Services Inc. (NYSE:LBRT) is the least popular one with only 7 bullish hedge fund positions. Sonic Automotive Inc (NYSE:SAH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SAH is 90. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 31.1% in 2021 through December 9th and beat the market again by 5.1 percentage points. Unfortunately SAH wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on SAH were disappointed as the stock returned -5.8% since the end of September (through 12/9) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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