Is Inc. (CARS) Going to Burn These Hedge Funds?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Inc. (NYSE:CARS).

Is Inc. (NYSE:CARS) a buy here? Money managers are getting less bullish. The number of bullish hedge fund bets retreated by 10 in recent months. Our calculations also showed that CARS isn’t among the 30 most popular stocks among hedge funds (click for Q1 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. 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 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.


Seth Klarman of Baupost Group

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind let’s take a gander at the latest hedge fund action surrounding Inc. (NYSE:CARS).

What have hedge funds been doing with Inc. (NYSE:CARS)?

Heading into the second quarter of 2020, a total of 24 of the hedge funds tracked by Insider Monkey were long this stock, a change of -29% from the previous quarter. On the other hand, there were a total of 27 hedge funds with a bullish position in CARS a year ago. With the smart money’s capital changing hands, there exists an “upper tier” of key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

Is CARS A Good Stock To Buy?

The largest stake in Inc. (NYSE:CARS) was held by Greenvale Capital, which reported holding $18.3 million worth of stock at the end of September. It was followed by Baupost Group with a $12.9 million position. Other investors bullish on the company included Steadfast Capital Management, Contrarius Investment Management, and Sessa Capital. In terms of the portfolio weights assigned to each position Greenvale Capital allocated the biggest weight to Inc. (NYSE:CARS), around 4.8% of its 13F portfolio. Rutabaga Capital Management is also relatively very bullish on the stock, setting aside 1.02 percent of its 13F equity portfolio to CARS.

Seeing as Inc. (NYSE:CARS) has witnessed a decline in interest from the smart money, it’s easy to see that there were a few funds that slashed their positions entirely by the end of the first quarter. At the top of the heap, Andrew Kurita’s Kettle Hill Capital Management said goodbye to the largest stake of the “upper crust” of funds followed by Insider Monkey, valued at an estimated $7.5 million in stock. Avi Fruchter’s fund, Anavon Capital, also dropped its stock, about $4.1 million worth. These bearish behaviors are interesting, as total hedge fund interest was cut by 10 funds by the end of the first quarter.

Let’s now take a look at hedge fund activity in other stocks similar to Inc. (NYSE:CARS). We will take a look at HBT Financial, Inc. (NASDAQ:HBT), TherapeuticsMD Inc (NASDAQ:TXMD), Pivotal Investment Corporation II (NYSE:PIC), and Oportun Financial Corporation (NASDAQ:OPRT). All of these stocks’ market caps are closest to CARS’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
HBT 7 7919 -3
TXMD 9 19669 -9
PIC 12 56180 -3
OPRT 8 3142 4
Average 9 21728 -2.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 9 hedge funds with bullish positions and the average amount invested in these stocks was $22 million. That figure was $68 million in CARS’s case. Pivotal Investment Corporation II (NYSE:PIC) is the most popular stock in this table. On the other hand HBT Financial, Inc. (NASDAQ:HBT) is the least popular one with only 7 bullish hedge fund positions. Compared to these stocks Inc. (NYSE:CARS) is more popular among hedge funds. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks returned 13.9% in 2020 through June 10th but still managed to beat the market by 14.2 percentage points. Hedge funds were also right about betting on CARS as the stock returned 62.8% so far in Q2 (through June 10th) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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