Hedge Funds Are Selling Cars.com Inc. (CARS)

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards Cars.com Inc. (NYSE:CARS) and determine whether hedge funds skillfully traded this stock.

Cars.com Inc. (NYSE:CARS) investors should pay attention to a decrease in enthusiasm from smart money lately. Cars.com Inc. (NYSE:CARS) was in 21 hedge funds’ portfolios at the end of June. The all time high for this statistics is 38. Our calculations also showed that CARS isn’t among the 30 most popular stocks among hedge funds (click for Q2 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.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 101% since March 2017 and outperformed the S&P 500 ETFs by more than 56 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Bruce Kovner, Caxton Associates LP

Bruce Kovner of Caxton Associates LP

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock. We are also checking out this lithium company which could benefit from the electric car adoption. We go through lists like the 10 most profitable companies in the world to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website to get excerpts of these letters in your inbox. With all of this in mind let’s view the fresh hedge fund action encompassing Cars.com Inc. (NYSE:CARS).

How are hedge funds trading Cars.com Inc. (NYSE:CARS)?

At Q2’s end, a total of 21 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -13% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in CARS over the last 20 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists an “upper tier” of key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Greenvale Capital, managed by Bruce Emery, holds the largest position in Cars.com Inc. (NYSE:CARS). Greenvale Capital has a $25.9 million position in the stock, comprising 4% of its 13F portfolio. On Greenvale Capital’s heels is Thyra Zerhusen of Fairpointe Capital, with a $12 million position; the fund has 1.8% of its 13F portfolio invested in the stock. Some other hedge funds and institutional investors that are bullish consist of Stephen Mildenhall’s Contrarius Investment Management, Robert Pitts’s Steadfast Capital Management and D. E. Shaw’s D E Shaw. In terms of the portfolio weights assigned to each position Greenvale Capital allocated the biggest weight to Cars.com Inc. (NYSE:CARS), around 3.99% of its 13F portfolio. Fairpointe Capital is also relatively very bullish on the stock, earmarking 1.75 percent of its 13F equity portfolio to CARS.

Due to the fact that Cars.com Inc. (NYSE:CARS) has experienced bearish sentiment from the smart money, it’s safe to say that there is a sect of hedgies who sold off their entire stakes last quarter. Interestingly, Seth Klarman’s Baupost Group sold off the largest position of the 750 funds followed by Insider Monkey, totaling an estimated $12.9 million in stock. Renaissance Technologies, also said goodbye to its stock, about $1.6 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 3 funds last quarter.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Cars.com Inc. (NYSE:CARS) but similarly valued. These stocks are ProSight Global, Inc. (NYSE:PROS), Berry Corporation (NASDAQ:BRY), Resources Connection, Inc. (NASDAQ:RGP), Aspira Women’s Health Inc. (NASDAQ:AWH), Lindblad Expeditions Holdings Inc (NASDAQ:LIND), IDEAYA Biosciences, Inc. (NASDAQ:IDYA), and Central Puerto S.A. (NYSE:CEPU). This group of stocks’ market caps match CARS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PROS 4 3287 0
BRY 14 68717 -2
RGP 13 47041 3
AWH 2 13174 -2
LIND 18 95624 2
IDYA 12 72953 6
CEPU 4 5834 -2
Average 9.6 43804 0.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 9.6 hedge funds with bullish positions and the average amount invested in these stocks was $44 million. That figure was $89 million in CARS’s case. Lindblad Expeditions Holdings Inc (NASDAQ:LIND) is the most popular stock in this table. On the other hand Aspira Women’s Health Inc. (NASDAQ:AWH) is the least popular one with only 2 bullish hedge fund positions. Compared to these stocks Cars.com Inc. (NYSE:CARS) is more popular among hedge funds. Our overall hedge fund sentiment score for CARS is 68.6. 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. 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 24.8% in 2020 through the end of September but still managed to beat the market by 19.3 percentage points. Hedge funds were also right about betting on CARS as the stock returned 40.3% since the end of June 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.