Is CarGurus, Inc. (CARG) A Good Stock To Buy?

Hedge funds are known to underperform the bull markets but that’s not because they are terrible at stock picking. Hedge funds underperform because their net exposure in only 40-70% and they charge exorbitant fees. No one knows what the future holds and how market participants will react to the bountiful news that floods in each day. However, hedge funds’ consensus picks on average deliver market beating returns. For example in the first 2.5 months of this year the Standard and Poor’s 500 Index returned approximately 13.1% (including dividend payments). Conversely, hedge funds’ top 15 large-cap stock picks generated a return of 19.7% during the same 2.5-month period, with 93% of these stock picks outperforming the broader market benchmark. Interestingly, an average long/short hedge fund returned only 5% due to the hedges they implemented and the large fees they charged. If you pay attention to the actual hedge fund returns (5%) versus the returns of their long stock picks, you might believe that it is a waste of time to analyze hedge funds’ purchases. We know better. That’s why we scrutinize hedge fund sentiment before we invest in a stock like CarGurus, Inc. (NASDAQ:CARG).

Is CarGurus, Inc. (NASDAQ:CARG) a bargain? Money managers are getting more optimistic. The number of bullish hedge fund positions increased by 2 recently. Our calculations also showed that CARG isn’t among the 30 most popular stocks among hedge funds.

According to most stock holders, hedge funds are assumed to be worthless, outdated investment tools of the past. While there are greater than 8000 funds with their doors open today, Our experts hone in on the leaders of this group, around 750 funds. Most estimates calculate that this group of people watch over bulk of the smart money’s total capital, and by tracking their finest equity investments, Insider Monkey has come up with many investment strategies that have historically outpaced the broader indices. Insider Monkey’s flagship hedge fund strategy outpaced the S&P 500 index by nearly 5 percentage points per year since its inception in May 2014 through early November 2018. We were able to generate large returns even by identifying short candidates. Our portfolio of short stocks lost 27.5% since February 2017 (through March 12th) even though the market was up nearly 25% during the same period. We just shared a list of 6 short targets in our latest quarterly update and they are already down an average of 6% in less than a month.

John Overdeck of Two Sigma

Let’s view the new hedge fund action regarding CarGurus, Inc. (NASDAQ:CARG).

What does the smart money think about CarGurus, Inc. (NASDAQ:CARG)?

At Q4’s end, a total of 19 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 12% from the previous quarter. By comparison, 7 hedge funds held shares or bullish call options in CARG a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists a few noteworthy hedge fund managers who were boosting their holdings significantly (or already accumulated large positions).


Among these funds, Hound Partners held the most valuable stake in CarGurus, Inc. (NASDAQ:CARG), which was worth $186.6 million at the end of the third quarter. On the second spot was Matrix Capital Management which amassed $163.3 million worth of shares. Moreover, Cat Rock Capital, Renaissance Technologies, and Two Sigma Advisors were also bullish on CarGurus, Inc. (NASDAQ:CARG), allocating a large percentage of their portfolios to this stock.

Consequently, specific money managers were breaking ground themselves. Woodson Capital Management, managed by James Woodson Davis, assembled the largest position in CarGurus, Inc. (NASDAQ:CARG). Woodson Capital Management had $12.1 million invested in the company at the end of the quarter. D. E. Shaw’s D E Shaw also made a $8.4 million investment in the stock during the quarter. The other funds with brand new CARG positions are Brian Gootzeit and Andrew Frank’s StackLine Partners, Cliff Asness’s AQR Capital Management, and Peter Algert and Kevin Coldiron’s Algert Coldiron Investors.

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as CarGurus, Inc. (NASDAQ:CARG) but similarly valued. We will take a look at Sterling Bancorp (NYSE:STL), Pebblebrook Hotel Trust (NYSE:PEB), The New York Times Company (NYSE:NYT), and Telephone & Data Systems, Inc. (NYSE:TDS). All of these stocks’ market caps resemble CARG’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
STL 18 445056 -3
PEB 12 79370 1
NYT 32 820804 -2
TDS 22 433911 2
Average 21 444785 -0.5

View table here if you experience formatting issues.

As you can see these stocks had an average of 21 hedge funds with bullish positions and the average amount invested in these stocks was $445 million. That figure was $630 million in CARG’s case. The New York Times Company (NYSE:NYT) is the most popular stock in this table. On the other hand Pebblebrook Hotel Trust (NYSE:PEB) is the least popular one with only 12 bullish hedge fund positions. CarGurus, Inc. (NASDAQ:CARG) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 15 most popular stocks) among hedge funds returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately CARG wasn’t nearly as popular as these 15 stock (hedge fund sentiment was quite bearish); CARG investors were disappointed as the stock returned 7.8% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.

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