Here’s What Hedge Funds Think About CarMax Inc (KMX)

Out of thousands of stocks that are currently traded on the market, it is difficult to identify those that will really generate strong returns. Hedge funds and institutional investors spend millions of dollars on analysts with MBAs and PhDs, who are industry experts and well connected to other industry and media insiders on top of that. Individual investors can piggyback the hedge funds employing these talents and can benefit from their vast resources and knowledge in that way. We analyze quarterly 13F filings of nearly 750 hedge funds and, by looking at the smart money sentiment that surrounds a stock, we can determine whether it has the potential to beat the market over the long-term. Therefore, let’s take a closer look at what smart money thinks about CarMax Inc (NYSE:KMX).

CarMax Inc (NYSE:KMX) investors should pay attention to an increase in enthusiasm from smart money recently. Our calculations also showed that kmx isn’t among the 30 most popular stocks among hedge funds.

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Tom Gayner

We’re going to take a glance at the new hedge fund action surrounding CarMax Inc (NYSE:KMX).

Hedge fund activity in CarMax Inc (NYSE:KMX)

At Q1’s end, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of 4% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards KMX over the last 15 quarters. With hedgies’ capital changing hands, there exists a select group of key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).

No of Hedge Funds with KMX Positions

Among these funds, Akre Capital Management held the most valuable stake in CarMax Inc (NYSE:KMX), which was worth $424.2 million at the end of the first quarter. On the second spot was Markel Gayner Asset Management which amassed $342.9 million worth of shares. Moreover, SQ Advisors, D E Shaw, and Palestra Capital Management were also bullish on CarMax Inc (NYSE:KMX), allocating a large percentage of their portfolios to this stock.

Now, specific money managers were leading the bulls’ herd. Palestra Capital Management, managed by Andrew Immerman and Jeremy Schiffman, initiated the biggest position in CarMax Inc (NYSE:KMX). Palestra Capital Management had $100.1 million invested in the company at the end of the quarter. Alok Agrawal’s Bloom Tree Partners also made a $45.7 million investment in the stock during the quarter. The other funds with brand new KMX positions are James Parsons’s Junto Capital Management, John W. Rogers’s Ariel Investments, and Sims Lansing’s Lansing Management.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as CarMax Inc (NYSE:KMX) but similarly valued. We will take a look at NRG Energy Inc (NYSE:NRG), Textron Inc. (NYSE:TXT), Tractor Supply Company (NASDAQ:TSCO), and Cna Financial Corporation (NYSE:CNA). This group of stocks’ market valuations are closest to KMX’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
NRG 40 1792102 -9
TXT 24 665699 -4
TSCO 33 579597 -8
CNA 14 76729 1
Average 27.75 778532 -5

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.75 hedge funds with bullish positions and the average amount invested in these stocks was $779 million. That figure was $1642 million in KMX’s case. NRG Energy Inc (NYSE:NRG) is the most popular stock in this table. On the other hand Cna Financial Corporation (NYSE:CNA) is the least popular one with only 14 bullish hedge fund positions. CarMax Inc (NYSE:KMX) is not the most popular stock in this group but hedge fund interest is still above average. 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. Hedge funds were also right about betting on KMX as the stock returned 11.9% during the same period and outperformed the market by an even larger margin. Hedge funds were rewarded for their relative bullishness.

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