Here is What Hedge Funds Think About O’Reilly Automotive Inc (ORLY)

We know that hedge funds generate strong, risk-adjusted returns over the long run, therefore imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, smart money investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do (like Peltz’s recent General Electric losses). However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, as the current round of 13F filings has just ended, let’s examine the smart money sentiment towards O’Reilly Automotive Inc (NASDAQ:ORLY).

O’Reilly Automotive Inc (NASDAQ:ORLY) has seen a decrease in hedge fund interest of late. Our calculations also showed that ORLY isn’t among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 40 percentage points since May 2014 through May 30, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 30.9% through May 30, 2019. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

John Overdeck of Two Sigma

We’re going to take a look at the fresh hedge fund action encompassing O’Reilly Automotive Inc (NASDAQ:ORLY).

Hedge fund activity in O’Reilly Automotive Inc (NASDAQ:ORLY)

At the end of the first quarter, a total of 43 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -4% from the fourth quarter of 2018. The graph below displays the number of hedge funds with bullish position in ORLY over the last 15 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.


Among these funds, Akre Capital Management held the most valuable stake in O’Reilly Automotive Inc (NASDAQ:ORLY), which was worth $732.9 million at the end of the first quarter. On the second spot was Abrams Capital Management which amassed $290.5 million worth of shares. Moreover, Two Sigma Advisors, AltaRock Partners, and D E Shaw were also bullish on O’Reilly Automotive Inc (NASDAQ:ORLY), allocating a large percentage of their portfolios to this stock.

Seeing as O’Reilly Automotive Inc (NASDAQ:ORLY) has faced falling interest from the entirety of the hedge funds we track, it’s safe to say that there is a sect of hedge funds that elected to cut their full holdings in the third quarter. Interestingly, James Parsons’s Junto Capital Management said goodbye to the biggest investment of the 700 funds tracked by Insider Monkey, valued at about $32.4 million in stock. Brandon Haley’s fund, Holocene Advisors, also cut its stock, about $25.7 million worth. These transactions are intriguing to say the least, as total hedge fund interest was cut by 2 funds in the third quarter.

Let’s also examine hedge fund activity in other stocks similar to O’Reilly Automotive Inc (NASDAQ:ORLY). These stocks are Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC), Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), Public Service Enterprise Group Incorporated (NYSE:PEG), and HP Inc. (NYSE:HPQ). This group of stocks’ market caps are similar to ORLY’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ERIC 20 425457 -5
ALXN 35 2311990 -6
PEG 28 1019022 -2
HPQ 35 868419 -5
Average 29.5 1156222 -4.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 29.5 hedge funds with bullish positions and the average amount invested in these stocks was $1156 million. That figure was $2016 million in ORLY’s case. Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) is the most popular stock in this table. On the other hand Telefonaktiebolaget LM Ericsson (publ) (NASDAQ:ERIC) is the least popular one with only 20 bullish hedge fund positions. Compared to these stocks O’Reilly Automotive Inc (NASDAQ:ORLY) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately ORLY wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on ORLY were disappointed as the stock returned -4.1% during the same 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 20 most popular stocks among hedge funds as 13 of these stocks already outperformed the market in Q2.

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