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Hedge Funds Have Never Been This Bullish On AutoZone, Inc. (AZO)

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). We reversed our stance on March 25th after seeing unprecedented fiscal and monetary stimulus unleashed by the Fed and the Congress. This is the perfect market for stock pickers, now that the stocks are fully valued again. 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 AutoZone, Inc. (NYSE:AZO) at the end of the second quarter and determine whether the smart money was really smart about this stock.

AutoZone, Inc. (NYSE:AZO) was in 55 hedge funds’ portfolios at the end of June. The all time high for this statistics is 46. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. AZO has experienced an increase in enthusiasm from smart money recently. There were 45 hedge funds in our database with AZO holdings at the end of March. Our calculations also showed that AZO 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.

If you’d ask most market participants, hedge funds are assumed to be worthless, outdated financial vehicles of yesteryear. While there are over 8000 funds trading at present, We hone in on the leaders of this group, about 850 funds. These investment experts manage most of the smart money’s total capital, and by monitoring their inimitable investments, Insider Monkey has deciphered many investment strategies that have historically exceeded the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points per year 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 .

Ricky Sandler of Eminence Capital

At Insider Monkey we scour multiple sources to uncover the next great investment idea. 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 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. With all of this in mind we’re going to check out the new hedge fund action encompassing AutoZone, Inc. (NYSE:AZO).

How are hedge funds trading AutoZone, Inc. (NYSE:AZO)?

At Q2’s end, a total of 55 of the hedge funds tracked by Insider Monkey were long this stock, a change of 22% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in AZO over the last 20 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is AZO A Good Stock To Buy?

Of the funds tracked by Insider Monkey, Gabriel Plotkin’s Melvin Capital Management has the biggest position in AutoZone, Inc. (NYSE:AZO), worth close to $984.3 million, accounting for 5.8% of its total 13F portfolio. The second largest stake is held by Iridian Asset Management, led by David Cohen and Harold Levy, holding a $188.2 million position; the fund has 4.2% of its 13F portfolio invested in the stock. Remaining hedge funds and institutional investors that are bullish include Brandon Haley’s Holocene Advisors, Ken Griffin’s Citadel Investment Group and Daniel Sundheim’s D1 Capital Partners. In terms of the portfolio weights assigned to each position BlueDrive Global Investors allocated the biggest weight to AutoZone, Inc. (NYSE:AZO), around 8.16% of its 13F portfolio. Melvin Capital Management is also relatively very bullish on the stock, dishing out 5.82 percent of its 13F equity portfolio to AZO.

As industrywide interest jumped, some big names have been driving this bullishness. Eminence Capital, managed by Ricky Sandler, initiated the most valuable position in AutoZone, Inc. (NYSE:AZO). Eminence Capital had $32.9 million invested in the company at the end of the quarter. Steven Boyd’s Armistice Capital also made a $31.6 million investment in the stock during the quarter. The other funds with brand new AZO positions are Stanley Druckenmiller’s Duquesne Capital, Paul Marshall and Ian Wace’s Marshall Wace LLP, and Clint Carlson’s Carlson Capital.

Let’s check out hedge fund activity in other stocks similar to AutoZone, Inc. (NYSE:AZO). We will take a look at Yum! Brands, Inc. (NYSE:YUM), Republic Services, Inc. (NYSE:RSG), KKR & Co Inc. (NYSE:KKR), Datadog, Inc. (NASDAQ:DDOG), Hormel Foods Corporation (NYSE:HRL), PACCAR Inc (NASDAQ:PCAR), and AFLAC Incorporated (NYSE:AFL). All of these stocks’ market caps match AZO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
YUM 47 1633184 6
RSG 37 821669 5
KKR 45 3339623 -3
DDOG 57 2363237 13
HRL 27 440889 -1
PCAR 30 244385 -8
AFL 34 588093 2
Average 39.6 1347297 2

View table here if you experience formatting issues.

As you can see these stocks had an average of 39.6 hedge funds with bullish positions and the average amount invested in these stocks was $1347 million. That figure was $2395 million in AZO’s case. Datadog, Inc. (NASDAQ:DDOG) is the most popular stock in this table. On the other hand Hormel Foods Corporation (NYSE:HRL) is the least popular one with only 27 bullish hedge fund positions. AutoZone, Inc. (NYSE:AZO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AZO is 86.7. 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 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 28.2% in 2020 through August 24th but beat the market by 20.6 percentage points. Unfortunately AZO wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on AZO were disappointed as the stock returned 7.3% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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