Here is What Hedge Funds Think About Santander Consumer USA Holdings Inc (SC)

While the market driven by short-term sentiment influenced by the accommodative interest rate environment in the US, virus news and stimulus spending, many smart money investors are starting to get cautious towards the current bull run since March, 2020 and hedging or reducing many of their long positions. Some fund managers are betting on Dow hitting 40,000 to generate strong returns. However, as we know, big investors usually buy stocks with strong fundamentals that can deliver gains both in bull and bear markets, which is why we believe we can profit from imitating them. In this article, we are going to take a look at the smart money sentiment surrounding Santander Consumer USA Holdings Inc (NYSE:SC).

Is Santander Consumer USA Holdings Inc (NYSE:SC) undervalued? The smart money was buying. The number of bullish hedge fund bets advanced by 3 recently. Santander Consumer USA Holdings Inc (NYSE:SC) was in 26 hedge funds’ portfolios at the end of June. The all time high for this statistic is 35. Our calculations also showed that SC isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 79 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.

With all of this in mind let’s go over the fresh hedge fund action regarding Santander Consumer USA Holdings Inc (NYSE:SC).

Do Hedge Funds Think SC Is A Good Stock To Buy Now?

At the end of the second quarter, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from one quarter earlier. By comparison, 20 hedge funds held shares or bullish call options in SC 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, Arrowstreet Capital held the most valuable stake in Santander Consumer USA Holdings Inc (NYSE:SC), which was worth $75.3 million at the end of the second quarter. On the second spot was Canyon Capital Advisors which amassed $73.3 million worth of shares. Millennium Management, Citadel Investment Group, and AQR 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 Canyon Capital Advisors allocated the biggest weight to Santander Consumer USA Holdings Inc (NYSE:SC), around 2.72% of its 13F portfolio. Water Street Capital is also relatively very bullish on the stock, dishing out 2.04 percent of its 13F equity portfolio to SC.

Consequently, some big names have jumped into Santander Consumer USA Holdings Inc (NYSE:SC) headfirst. Governors Lane, managed by Isaac Corre, initiated the most outsized call position in Santander Consumer USA Holdings Inc (NYSE:SC). Governors Lane had $21.8 million invested in the company at the end of the quarter. Isaac Corre’s Governors Lane also initiated a $4.8 million position during the quarter. The other funds with brand new SC positions are Jeffrey Tannenbaum’s Fir Tree, Allon Hellmann’s Full18 Capital, and Karim Abbadi and Edward McBride’s Centiva Capital.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Santander Consumer USA Holdings Inc (NYSE:SC) but similarly valued. We will take a look at Levi Strauss & Co. (NYSE:LEVI), Floor & Decor Holdings, Inc. (NYSE:FND), Watsco Inc (NYSE:WSO), Virgin Galactic Holdings, Inc. (NYSE:SPCE), Bunge Limited (NYSE:BG), Qiagen NV (NYSE:QGEN), and Morningstar, Inc. (NASDAQ:MORN). This group of stocks’ market values resemble SC’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 26.9 hedge funds with bullish positions and the average amount invested in these stocks was $630 million. That figure was $326 million in SC’s case. Bunge Limited (NYSE:BG) is the most popular stock in this table. On the other hand Virgin Galactic Holdings, Inc. (NYSE:SPCE) is the least popular one with only 18 bullish hedge fund positions. Santander Consumer USA Holdings Inc (NYSE:SC) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for SC is 48.5. 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 24.9% in 2021 through October 15th and still beat the market by 4.5 percentage points. A small number of hedge funds were also right about betting on SC as the stock returned 15.2% since the end of the second quarter (through 10/15) and outperformed the market by an even larger margin.

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