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 Autohome Inc (NYSE:ATHM) and determine whether hedge funds had an edge regarding this stock.
Is Autohome Inc (NYSE:ATHM) a bargain? Investors who are in the know were turning bullish. The number of long hedge fund bets rose by 9 recently. Autohome Inc (NYSE:ATHM) was in 24 hedge funds’ portfolios at the end of June. The all time high for this statistics is 18. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that ATHM 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.
To most shareholders, hedge funds are assumed to be underperforming, outdated financial vehicles of the past. While there are greater than 8000 funds trading at present, Our researchers choose to focus on the masters of this group, about 850 funds. These hedge fund managers handle the lion’s share of the smart money’s total asset base, and by paying attention to their finest investments, Insider Monkey has formulated a few investment strategies that have historically exceeded the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy exceeded the S&P 500 short ETFs by around 20 percentage points annually since its inception in March 2017. Our portfolio of short stocks lost 34% since February 2017 (through August 17th) even though the market was up 53% during the same period. We just shared a list of 8 short targets in our latest quarterly update .
At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, legal marijuana is one of the fastest growing industries right now, so we are checking out stock pitches like “the Starbucks of cannabis” to identify the next tenbagger. 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. Keeping this in mind we’re going to take a glance at the fresh hedge fund action surrounding Autohome Inc (NYSE:ATHM).
What have hedge funds been doing with Autohome Inc (NYSE:ATHM)?
Heading into the third quarter of 2020, a total of 24 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 60% from the first quarter of 2020. Below, you can check out the change in hedge fund sentiment towards ATHM over the last 20 quarters. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
More specifically, Orbis Investment Management was the largest shareholder of Autohome Inc (NYSE:ATHM), with a stake worth $546.4 million reported as of the end of September. Trailing Orbis Investment Management was OZ Management, which amassed a stake valued at $107.5 million. Renaissance Technologies, D E Shaw, and Millennium 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 Orbis Investment Management allocated the biggest weight to Autohome Inc (NYSE:ATHM), around 4.11% of its 13F portfolio. Ovata Capital Management is also relatively very bullish on the stock, earmarking 3.05 percent of its 13F equity portfolio to ATHM.
Now, key hedge funds have jumped into Autohome Inc (NYSE:ATHM) headfirst. Ovata Capital Management, managed by James Chen, established the most valuable position in Autohome Inc (NYSE:ATHM). Ovata Capital Management had $10.2 million invested in the company at the end of the quarter. Paul Tudor Jones’s Tudor Investment Corp also made a $10 million investment in the stock during the quarter. The following funds were also among the new ATHM investors: Paul Marshall and Ian Wace’s Marshall Wace LLP, Louis Bacon’s Moore Global Investments, and Charles Clough’s Clough Capital Partners.
Let’s now review hedge fund activity in other stocks similar to Autohome Inc (NYSE:ATHM). We will take a look at Banco de Chile (NYSE:BCH), Lennox International Inc. (NYSE:LII), Centrais Elétricas Brasileiras S.A. – Eletrobrás (NYSE:EBR), The Western Union Company (NYSE:WU), Camden Property Trust (NYSE:CPT), ICON Public Limited Company (NASDAQ:ICLR), and Fortune Brands Home & Security Inc (NYSE:FBHS). This group of stocks’ market valuations resemble ATHM’s market valuation.
|Ticker||No of HFs with positions||Total Value of HF Positions (x1000)||Change in HF Position|
View table here if you experience formatting issues.
As you can see these stocks had an average of 21.9 hedge funds with bullish positions and the average amount invested in these stocks was $322 million. That figure was $821 million in ATHM’s case. The Western Union Company (NYSE:WU) is the most popular stock in this table. On the other hand Banco de Chile (NYSE:BCH) is the least popular one with only 3 bullish hedge fund positions. Autohome Inc (NYSE:ATHM) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ATHM is 73.9. 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 gained 21.3% in 2020 through September 25th and still beat the market by 17.7 percentage points. Hedge funds were also right about betting on ATHM as the stock returned 19.4% during Q3 (through September 25th) and outperformed the market. Hedge funds were rewarded for their relative bullishness.
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Disclosure: None. This article was originally published at Insider Monkey.