Hedge Funds Can’t Stop Buying Copart, Inc. (CPRT)

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Copart, Inc. (NASDAQ:CPRT) and determine whether hedge funds had an edge regarding this stock.

Is Copart, Inc. (NASDAQ:CPRT) the right investment to pursue these days? Investors who are in the know were getting more bullish. The number of bullish hedge fund positions increased by 12 lately. Copart, Inc. (NASDAQ:CPRT) was in 60 hedge funds’ portfolios at the end of June. The all time high for this statistics is 48. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that CPRT 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). There were 48 hedge funds in our database with CPRT positions at the end of the first quarter.

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 has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 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 underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

Dmitry Balyasny of Balyasny Asset Managemnet

Dmitry Balyasny of Balyasny Asset Management

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Currently, investors are pessimistic about commercial real estate investments. So, we are checking out this contrarian play to diversify our market exposure. We go through lists like the 10 most profitable companies in America 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. Keeping this in mind let’s review the recent hedge fund action surrounding Copart, Inc. (NASDAQ:CPRT).

What does smart money think about Copart, Inc. (NASDAQ:CPRT)?

At Q2’s end, a total of 60 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 25% from the first quarter of 2020. On the other hand, there were a total of 30 hedge funds with a bullish position in CPRT a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

The largest stake in Copart, Inc. (NASDAQ:CPRT) was held by Gobi Capital, which reported holding $66.1 million worth of stock at the end of September. It was followed by Echo Street Capital Management with a $59.1 million position. Other investors bullish on the company included Citadel Investment Group, Nitorum Capital, and Praesidium Investment Management Company. In terms of the portfolio weights assigned to each position Incline Global Management allocated the biggest weight to Copart, Inc. (NASDAQ:CPRT), around 6.57% of its 13F portfolio. Highside Global Management is also relatively very bullish on the stock, designating 6.24 percent of its 13F equity portfolio to CPRT.

With a general bullishness amongst the heavyweights, key hedge funds were leading the bulls’ herd. Praesidium Investment Management Company, managed by Kevin Oram and Peter Uddo, established the most valuable position in Copart, Inc. (NASDAQ:CPRT). Praesidium Investment Management Company had $55.8 million invested in the company at the end of the quarter. Jeff Lignelli’s Incline Global Management also initiated a $31.2 million position during the quarter. The other funds with brand new CPRT positions are Amit Nitin Doshi’s Harbor Spring Capital, Renaissance Technologies, and Dmitry Balyasny’s Balyasny Asset Management.

Let’s now review hedge fund activity in other stocks similar to Copart, Inc. (NASDAQ:CPRT). These stocks are Banco Santander (Brasil) SA (NYSE:BSBR), Mettler-Toledo International Inc. (NYSE:MTD), Carrier Global Corporation (NYSE:CARR), Lennar Corporation (NYSE:LEN), Energy Transfer L.P. (NYSE:ET), Church & Dwight Co., Inc. (NYSE:CHD), and MarketAxess Holdings Inc. (NASDAQ:MKTX). This group of stocks’ market valuations resemble CPRT’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
BSBR 10 18916 2
MTD 27 584124 -4
CARR 44 1524605 41
LEN 55 1692845 -2
ET 31 552361 -2
CHD 33 508177 -3
MKTX 33 918191 6
Average 33.3 828460 5.4

View table here if you experience formatting issues.

As you can see these stocks had an average of 33.3 hedge funds with bullish positions and the average amount invested in these stocks was $828 million. That figure was $827 million in CPRT’s case. Lennar Corporation (NYSE:LEN) is the most popular stock in this table. On the other hand Banco Santander (Brasil) SA (NYSE:BSBR) is the least popular one with only 10 bullish hedge fund positions. Compared to these stocks Copart, Inc. (NASDAQ:CPRT) is more popular among hedge funds. Our overall hedge fund sentiment score for CPRT 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. 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 28.2% in 2020 through August 24th but still managed to beat the market by 20.6 percentage points. Hedge funds were also right about betting on CPRT as the stock returned 21.1% 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.