Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). 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 Credit Acceptance Corp. (NASDAQ:CACC).
Credit Acceptance Corp. (NASDAQ:CACC) was in 23 hedge funds’ portfolios at the end of the first quarter of 2021. The all time high for this statistic is 31. CACC investors should be aware of a decrease in support from the world’s most elite money managers in recent months. There were 29 hedge funds in our database with CACC holdings at the end of December. Our calculations also showed that CACC isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings).
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 115 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, Chuck Schumer recently stated that marijuana legalization will be a Senate priority. So, we are checking out this under the radar stock that will benefit from this. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. 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 homepage. With all of this in mind we’re going to take a peek at the recent hedge fund action regarding Credit Acceptance Corp. (NASDAQ:CACC).
Do Hedge Funds Think CACC Is A Good Stock To Buy Now?
Heading into the second quarter of 2021, a total of 23 of the hedge funds tracked by Insider Monkey were long this stock, a change of -21% from one quarter earlier. On the other hand, there were a total of 22 hedge funds with a bullish position in CACC a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Gobi Capital held the most valuable stake in Credit Acceptance Corp. (NASDAQ:CACC), which was worth $219.5 million at the end of the fourth quarter. On the second spot was Cantillon Capital Management which amassed $100.1 million worth of shares. Abrams Bison Investments, BloombergSen, and Goodnow Investment Group 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 Gobi Capital allocated the biggest weight to Credit Acceptance Corp. (NASDAQ:CACC), around 14.84% of its 13F portfolio. Abrams Bison Investments is also relatively very bullish on the stock, dishing out 5.55 percent of its 13F equity portfolio to CACC.
Since Credit Acceptance Corp. (NASDAQ:CACC) has faced falling interest from hedge fund managers, we can see that there was a specific group of money managers that slashed their entire stakes heading into Q2. Interestingly, John Khabbaz’s Phoenician Capital sold off the largest investment of the 750 funds monitored by Insider Monkey, comprising close to $8.8 million in stock. James Thomas Berylson’s fund, Berylson Capital Partners, also said goodbye to its stock, about $6.7 million worth. These moves are intriguing to say the least, as total hedge fund interest fell by 6 funds heading into Q2.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Credit Acceptance Corp. (NASDAQ:CACC) but similarly valued. We will take a look at Alcoa Corporation (NYSE:AA), LHC Group, Inc. (NASDAQ:LHCG), Chindata Group Holdings Limited (NASDAQ:CD), Pure Storage, Inc. (NYSE:PSTG), Ingredion Incorporated (NYSE:INGR), Healthcare Trust Of America Inc (NYSE:HTA), and Twist Bioscience Corporation (NASDAQ:TWST). This group of stocks’ market values resemble CACC’s market value.
|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 23 hedge funds with bullish positions and the average amount invested in these stocks was $570 million. That figure was $544 million in CACC’s case. Alcoa Corporation (NYSE:AA) is the most popular stock in this table. On the other hand Chindata Group Holdings Limited (NASDAQ:CD) is the least popular one with only 9 bullish hedge fund positions. Credit Acceptance Corp. (NASDAQ:CACC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for CACC is 45.4. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 23.8% in 2021 through July 16th and still beat the market by 7.7 percentage points. A small number of hedge funds were also right about betting on CACC as the stock returned 26.5% since the end of the first quarter (through 7/16) and outperformed the market by an even larger margin.
Follow Credit Acceptance Corp (NASDAQ:CACC)
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Disclosure: None. This article was originally published at Insider Monkey.