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Hedge Funds Dumped America’s Car-Mart, Inc. (CRMT) At The Wrong Time

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (see why hell is coming). In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. In this article, we will take a closer look at hedge fund sentiment towards America’s Car-Mart, Inc. (NASDAQ:CRMT) at the end of the first quarter and determine whether the smart money was really smart about this stock.

America’s Car-Mart, Inc. (NASDAQ:CRMT) was in 10 hedge funds’ portfolios at the end of the first quarter of 2020. CRMT investors should be aware of a decrease in activity from the world’s largest hedge funds of late. There were 21 hedge funds in our database with CRMT holdings at the end of the previous quarter. Our calculations also showed that CRMT 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.

In the financial world there are many methods investors employ to value stocks. A duo of the most under-the-radar methods are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the best picks of the top hedge fund managers can outpace the broader indices by a healthy amount (see the details here).

Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Now let’s view the new hedge fund action encompassing America’s Car-Mart, Inc. (NASDAQ:CRMT).

What does smart money think about America’s Car-Mart, Inc. (NASDAQ:CRMT)?

Heading into the second quarter of 2020, a total of 10 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -52% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CRMT over the last 18 quarters. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were upping their holdings substantially (or already accumulated large positions).

Is CRMT A Good Stock To Buy?

Among these funds, Royce & Associates held the most valuable stake in America’s Car-Mart, Inc. (NASDAQ:CRMT), which was worth $13.5 million at the end of the third quarter. On the second spot was Portolan Capital Management which amassed $6.3 million worth of shares. Magnolia Capital Fund, Millennium Management, and Prescott Group 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 Portolan Capital Management allocated the biggest weight to America’s Car-Mart, Inc. (NASDAQ:CRMT), around 0.95% of its 13F portfolio. Magnolia Capital Fund is also relatively very bullish on the stock, dishing out 0.89 percent of its 13F equity portfolio to CRMT.

Due to the fact that America’s Car-Mart, Inc. (NASDAQ:CRMT) has experienced a decline in interest from hedge fund managers, logic holds that there lies a certain “tier” of hedgies who sold off their full holdings by the end of the first quarter. Interestingly, Ken Grossman and Glen Schneider’s SG Capital Management sold off the largest position of the “upper crust” of funds monitored by Insider Monkey, totaling close to $12.8 million in stock. Ravi Chopra’s fund, Azora Capital, also sold off its stock, about $8.9 million worth. These transactions are important to note, as total hedge fund interest dropped by 11 funds by the end of the first quarter.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as America’s Car-Mart, Inc. (NASDAQ:CRMT) but similarly valued. We will take a look at Puxin Limited (NYSE:NEW), Controladora Vuela Co Avcn SA CV (NYSE:VLRS), Boot Barn Holdings Inc (NYSE:BOOT), and IES Holdings, Inc. (NASDAQ:IESC). All of these stocks’ market caps match CRMT’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NEW 8 5758 0
VLRS 9 33933 -2
BOOT 20 31760 -8
IESC 10 237335 -1
Average 11.75 77197 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 11.75 hedge funds with bullish positions and the average amount invested in these stocks was $77 million. That figure was $30 million in CRMT’s case. Boot Barn Holdings Inc (NYSE:BOOT) is the most popular stock in this table. On the other hand Puxin Limited (NYSE:NEW) is the least popular one with only 8 bullish hedge fund positions. America’s Car-Mart, Inc. (NASDAQ:CRMT) 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 12.3% in 2020 through June 30th and still beat the market by 15.5 percentage points. A small number of hedge funds were also right about betting on CRMT as the stock returned 55.9% 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.