Is Lithia Motors (LAD) Stock A Buy or Sell?

The financial regulations require hedge funds and wealthy investors that exceeded the $100 million holdings threshold to file a report that shows their positions at the end of every quarter. Even though it isn’t the intention, these filings to a certain extent level the playing field for ordinary investors. The latest round of 13F filings disclosed the funds’ positions on December 31st. We at Insider Monkey have made an extensive database of more than 887 of those established hedge funds and famous value investors’ filings. In this article, we analyze how these elite funds and prominent investors traded Lithia Motors Inc (NYSE:LAD) based on those filings.

Is LAD stock a buy or sell? Money managers were in a bearish mood. The number of bullish hedge fund bets decreased by 10 lately. Lithia Motors Inc (NYSE:LAD) was in 39 hedge funds’ portfolios at the end of December. The all time high for this statistic is 49. Our calculations also showed that LAD isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings). There were 49 hedge funds in our database with LAD holdings at the end of September.

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 124 percentage points since March 2017 (see the details here).

David Abrams

David Abrams of Abrams Capital Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the House passed a landmark bill decriminalizing marijuana. So, we are checking out this under the radar cannabis stock right now. We go through lists like the 10 best battery stocks to buy to identify the next stock with 10x upside potential. 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 let’s check out the latest hedge fund action regarding Lithia Motors Inc (NYSE:LAD).

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

At Q4’s end, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -20% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards LAD over the last 22 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their holdings significantly (or already accumulated large positions).

The largest stake in Lithia Motors Inc (NYSE:LAD) was held by Abrams Capital Management, which reported holding $688.1 million worth of stock at the end of December. It was followed by Southpoint Capital Advisors with a $168.3 million position. Other investors bullish on the company included Park West Asset Management, Cardinal Capital, and Tensile Capital. In terms of the portfolio weights assigned to each position Abrams Capital Management allocated the biggest weight to Lithia Motors Inc (NYSE:LAD), around 19.41% of its 13F portfolio. Tensile Capital is also relatively very bullish on the stock, designating 11.92 percent of its 13F equity portfolio to LAD.

Since Lithia Motors Inc (NYSE:LAD) has witnessed a decline in interest from hedge fund managers, logic holds that there is a sect of money managers that elected to cut their full holdings last quarter. Interestingly, Robert Boucai’s Newbrook Capital Advisors cut the biggest investment of the 750 funds monitored by Insider Monkey, totaling close to $28.3 million in stock. Steve Cohen’s fund, Point72 Asset Management, also said goodbye to its stock, about $7.6 million worth. These moves are important to note, as aggregate hedge fund interest was cut by 10 funds last quarter.

Let’s check out hedge fund activity in other stocks similar to Lithia Motors Inc (NYSE:LAD). These stocks are Steel Dynamics, Inc. (NASDAQ:STLD), Regency Centers Corp (NASDAQ:REG), AGCO Corporation (NYSE:AGCO), Acceleron Pharma Inc (NASDAQ:XLRN), Commerce Bancshares, Inc. (NASDAQ:CBSH), OneConnect Financial Technology Co., Ltd. (NYSE:OCFT), and Churchill Downs Incorporated (NASDAQ:CHDN). All of these stocks’ market caps resemble LAD’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
STLD 27 413067 -1
REG 24 242199 1
AGCO 40 589058 9
XLRN 34 1343619 0
CBSH 16 55715 1
OCFT 5 55761 -6
CHDN 25 377356 -3
Average 24.4 439539 0.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 24.4 hedge funds with bullish positions and the average amount invested in these stocks was $440 million. That figure was $1577 million in LAD’s case. AGCO Corporation (NYSE:AGCO) is the most popular stock in this table. On the other hand OneConnect Financial Technology Co., Ltd. (NYSE:OCFT) is the least popular one with only 5 bullish hedge fund positions. Lithia Motors Inc (NYSE:LAD) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LAD is 67.4. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 5.3% in 2021 through March 19th and still beat the market by 0.8 percentage points. Hedge funds were also right about betting on LAD as the stock returned 35.2% since the end of Q4 (through 3/19) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

Follow Lithia Motors Inc (NYSE:LAD)

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