Is AZO A Good Stock To Buy Now?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 817 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of September 30th, about a month before the elections. In this article we look at what those investors think of AutoZone, Inc. (NYSE:AZO).

Is AZO a good stock to buy now? AutoZone, Inc. (NYSE:AZO) was in 53 hedge funds’ portfolios at the end of September. The all time high for this statistics is 55. AZO shareholders have witnessed a decrease in hedge fund interest lately. There were 55 hedge funds in our database with AZO holdings at the end of June. Our calculations also showed that AZO isn’t among the 30 most popular stocks among hedge funds (click for Q3 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.

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 monthly stock picks returned 113% since March 2017 and outperformed the S&P 500 ETFs by more than 66 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Harold Levy Iridian Asset Management

Harold Levy of Iridian Asset Management

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. Tesla’s stock price skyrocketed, yet lithium prices are still below their 2019 highs. So, we are checking out this lithium stock right now. We go through lists like the 15 best blue chip stocks to buy to pick the best large-cap stocks to buy. 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 website. With all of this in mind we’re going to view the new hedge fund action regarding AutoZone, Inc. (NYSE:AZO).

What have hedge funds been doing with AutoZone, Inc. (NYSE:AZO)?

At the end of September, a total of 53 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -4% from the second quarter of 2020. Below, you can check out the change in hedge fund sentiment towards AZO over the last 21 quarters. With the smart money’s capital changing hands, there exists a few key hedge fund managers who were increasing their holdings considerably (or already accumulated large positions).

More specifically, Melvin Capital Management was the largest shareholder of AutoZone, Inc. (NYSE:AZO), with a stake worth $486.7 million reported as of the end of September. Trailing Melvin Capital Management was Citadel Investment Group, which amassed a stake valued at $215.1 million. Iridian Asset Management, Holocene Advisors, and D E Shaw 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 Blue Grotto Capital allocated the biggest weight to AutoZone, Inc. (NYSE:AZO), around 5.57% of its 13F portfolio. BlueDrive Global Investors is also relatively very bullish on the stock, dishing out 5.03 percent of its 13F equity portfolio to AZO.

Due to the fact that AutoZone, Inc. (NYSE:AZO) has experienced bearish sentiment from the smart money, logic holds that there were a few funds that slashed their full holdings heading into Q4. At the top of the heap, Daniel Sundheim’s D1 Capital Partners said goodbye to the biggest stake of the “upper crust” of funds watched by Insider Monkey, valued at an estimated $112.2 million in stock. Stanley Druckenmiller’s fund, Duquesne Capital, also said goodbye to its stock, about $21.3 million worth. These bearish behaviors are intriguing to say the least, as total hedge fund interest dropped by 2 funds heading into Q4.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as AutoZone, Inc. (NYSE:AZO) but similarly valued. We will take a look at Yum! Brands, Inc. (NYSE:YUM), D.R. Horton, Inc. (NYSE:DHI), STMicroelectronics N.V. (NYSE:STM), The Travelers Companies Inc (NYSE:TRV), Okta, Inc. (NASDAQ:OKTA), V.F. Corporation (NYSE:VFC), and Waste Connections, Inc. (NYSE:WCN). This group of stocks’ market valuations are similar to AZO’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
YUM 42 1382033 -5
DHI 62 2136859 -4
STM 21 180953 9
TRV 35 418876 7
OKTA 51 1875052 -9
VFC 22 457655 -5
WCN 32 544857 -7
Average 37.9 999469 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 37.9 hedge funds with bullish positions and the average amount invested in these stocks was $999 million. That figure was $2108 million in AZO’s case. D.R. Horton, Inc. (NYSE:DHI) is the most popular stock in this table. On the other hand STMicroelectronics N.V. (NYSE:STM) is the least popular one with only 21 bullish hedge fund positions. AutoZone, Inc. (NYSE:AZO) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for AZO is 70.9. 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. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10 percentage points. These stocks gained 31.6% in 2020 through December 2nd and beat the market again by 16 percentage points. Unfortunately AZO wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on AZO were disappointed as the stock returned -2.2% since the end of September (through 12/2) 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 many of these stocks already outperformed the market so far this year.

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