Here is How Hedge Funds Traded Advance Auto Parts, Inc. (AAP) Recently

Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the first quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4.5 years and analyze what the smart money thinks of Advance Auto Parts, Inc. (NYSE:AAP) based on that data.

Advance Auto Parts, Inc. (NYSE:AAP) was in 38 hedge funds’ portfolios at the end of March. AAP shareholders have witnessed a decrease in enthusiasm from smart money of late. There were 42 hedge funds in our database with AAP positions at the end of the previous quarter. Our calculations also showed that AAP 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.

To the average investor there are a multitude of indicators stock traders can use to evaluate stocks. A pair of the best indicators are hedge fund and insider trading interest. We have shown that, historically, those who follow the best picks of the top fund managers can outclass the broader indices by a significant amount (see the details here).

Jeff Smith

Jeffrey Smith of Starboard Value LP

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to go over the latest hedge fund action encompassing Advance Auto Parts, Inc. (NYSE:AAP).

What does smart money think about Advance Auto Parts, Inc. (NYSE:AAP)?

At the end of the first quarter, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from the fourth quarter of 2019. On the other hand, there were a total of 47 hedge funds with a bullish position in AAP a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

The largest stake in Advance Auto Parts, Inc. (NYSE:AAP) was held by Melvin Capital Management, which reported holding $309.4 million worth of stock at the end of September. It was followed by Starboard Value LP with a $240.1 million position. Other investors bullish on the company included Diamond Hill Capital, Melvin Capital Management, and Point72 Asset Management. In terms of the portfolio weights assigned to each position Starboard Value LP allocated the biggest weight to Advance Auto Parts, Inc. (NYSE:AAP), around 9.74% of its 13F portfolio. Lionstone Capital Management is also relatively very bullish on the stock, dishing out 4.81 percent of its 13F equity portfolio to AAP.

Because Advance Auto Parts, Inc. (NYSE:AAP) has faced a decline in interest from hedge fund managers, we can see that there were a few funds who were dropping their positions entirely heading into Q4. It’s worth mentioning that Gregg Moskowitz’s Interval Partners dropped the biggest stake of all the hedgies followed by Insider Monkey, totaling close to $41.6 million in stock, and Doug Gordon, Jon Hilsabeck and Don Jabro’s Shellback Capital was right behind this move, as the fund cut about $16.8 million worth. These transactions are interesting, as total hedge fund interest was cut by 4 funds heading into Q4.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Advance Auto Parts, Inc. (NYSE:AAP) but similarly valued. These stocks are Aspen Technology, Inc. (NASDAQ:AZPN), Regency Centers Corp (NASDAQ:REG), AptarGroup, Inc. (NYSE:ATR), and PagSeguro Digital Ltd. (NYSE:PAGS). All of these stocks’ market caps resemble AAP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
AZPN 20 736673 -17
REG 18 167065 2
ATR 20 156311 -5
PAGS 20 490881 -1
Average 19.5 387733 -5.25

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.5 hedge funds with bullish positions and the average amount invested in these stocks was $388 million. That figure was $840 million in AAP’s case. Aspen Technology, Inc. (NASDAQ:AZPN) is the most popular stock in this table. On the other hand Regency Centers Corp (NASDAQ:REG) is the least popular one with only 18 bullish hedge fund positions. Compared to these stocks Advance Auto Parts, Inc. (NYSE:AAP) is more popular among hedge funds. 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 8.3% in 2020 through the end of May but still managed to beat the market by 13.2 percentage points. Hedge funds were also right about betting on AAP as the stock returned 49.3% so far in Q2 (through the end of May) 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.