Hedge Funds Have Never Been This Bullish On CarGurus, Inc. (CARG)

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (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. Keeping this in mind, let’s take a look at whether CarGurus, Inc. (NASDAQ:CARG) is a good investment right now. We like to check what the smart money thinks first before doing extensive research on a given stock. Although there have been several high profile failed hedge fund picks, the consensus picks among hedge fund investors have historically outperformed the market after adjusting for known risk attributes. It’s not surprising given that hedge funds have access to better information and more resources to predict the winners in the stock market.

Is CarGurus, Inc. (NASDAQ:CARG) a healthy stock for your portfolio? Prominent investors are taking a bullish view. The number of long hedge fund bets moved up by 11 lately. Our calculations also showed that CARG isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). CARG was in 33 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 22 hedge funds in our database with CARG holdings at the end of the previous quarter.

At the moment there are a lot of metrics market participants have at their disposal to grade stocks. A pair of the most under-the-radar metrics are hedge fund and insider trading signals. Our experts have shown that, historically, those who follow the best picks of the best fund managers can trounce the broader indices by a superb margin (see the details here).

Wall Street Bull

We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to review the fresh hedge fund action surrounding CarGurus, Inc. (NASDAQ:CARG).

Hedge fund activity in CarGurus, Inc. (NASDAQ:CARG)

Heading into the first quarter of 2020, a total of 33 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 50% from one quarter earlier. On the other hand, there were a total of 19 hedge funds with a bullish position in CARG a year ago. With hedge funds’ sentiment swirling, there exists an “upper tier” of notable hedge fund managers who were upping their stakes considerably (or already accumulated large positions).

More specifically, Cat Rock Capital was the largest shareholder of CarGurus, Inc. (NASDAQ:CARG), with a stake worth $207.3 million reported as of the end of September. Trailing Cat Rock Capital was Matrix Capital Management, which amassed a stake valued at $189.7 million. HMI Capital, Hound Partners, and Woodson 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 Cat Rock Capital allocated the biggest weight to CarGurus, Inc. (NASDAQ:CARG), around 29.21% of its 13F portfolio. Blacksheep Fund Management is also relatively very bullish on the stock, setting aside 23.46 percent of its 13F equity portfolio to CARG.

With a general bullishness amongst the heavyweights, specific money managers have jumped into CarGurus, Inc. (NASDAQ:CARG) headfirst. Blacksheep Fund Management, managed by Alexis Fortune, created the largest position in CarGurus, Inc. (NASDAQ:CARG). Blacksheep Fund Management had $31.5 million invested in the company at the end of the quarter. Shashin Shah’s Think Investments also initiated a $5.2 million position during the quarter. The other funds with new positions in the stock are Michael Kharitonov and Jon David McAuliffe’s Voleon Capital, Gilchrist Berg’s Water Street Capital, and James Thomas Berylson’s Berylson Capital Partners.

Let’s also examine hedge fund activity in other stocks similar to CarGurus, Inc. (NASDAQ:CARG). These stocks are HUYA Inc. (NYSE:HUYA), United Bankshares, Inc. (NASDAQ:UBSI), Bank OZK (NASDAQ:OZK), and Blackbaud, Inc. (NASDAQ:BLKB). This group of stocks’ market valuations are closest to CARG’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HUYA 21 305224 -1
UBSI 18 51802 7
OZK 25 276283 4
BLKB 16 102843 2
Average 20 184038 3

View table here if you experience formatting issues.

As you can see these stocks had an average of 20 hedge funds with bullish positions and the average amount invested in these stocks was $184 million. That figure was $936 million in CARG’s case. Bank OZK (NASDAQ:OZK) is the most popular stock in this table. On the other hand Blackbaud, Inc. (NASDAQ:BLKB) is the least popular one with only 16 bullish hedge fund positions. Compared to these stocks CarGurus, Inc. (NASDAQ:CARG) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 17.4% in 2020 through March 25th and still beat the market by 5.5 percentage points. Unfortunately CARG wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CARG were disappointed as the stock returned -43.2% during the first two and a half months of 2020 (through March 25th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in Q1.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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