Is LKQ Corporation (LKQ) A Good Stock To Buy?

At Insider Monkey we track the activity of some of the best-performing hedge funds like Appaloosa Management, Baupost, and Third Point because we determined that some of the stocks that they are collectively bullish on can help us generate returns above the broader indices. Out of thousands of stocks that hedge funds invest in, small-caps can provide the best returns over the long term due to the fact that these companies are less efficiently priced and are usually under the radars of mass-media, analysts and dumb money. This is why we follow the smart money moves in the small-cap space.

Is LKQ Corporation (NASDAQ:LKQ) the right pick for your portfolio? Money managers are betting on the stock. The number of bullish hedge fund positions improved by 5 recently. Our calculations also showed that LKQ isn’t among the 30 most popular stocks among hedge funds.

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Jeffrey Tannenbaum, Fir Tree

Let’s take a glance at the key hedge fund action regarding LKQ Corporation (NASDAQ:LKQ).

How have hedgies been trading LKQ Corporation (NASDAQ:LKQ)?

At Q3’s end, a total of 45 of the hedge funds tracked by Insider Monkey were long this stock, a change of 13% from one quarter earlier. By comparison, 34 hedge funds held shares or bullish call options in LKQ heading into this year. With the smart money’s sentiment swirling, there exists a select group of notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

No of Hedge Funds with LKQ Positions

Among these funds, Hound Partners held the most valuable stake in LKQ Corporation (NASDAQ:LKQ), which was worth $183.8 million at the end of the third quarter. On the second spot was Fir Tree which amassed $125.3 million worth of shares. Moreover, Incline Global Management, D E Shaw, and Park Presidio Capital were also bullish on LKQ Corporation (NASDAQ:LKQ), allocating a large percentage of their portfolios to this stock.

Now, specific money managers have jumped into LKQ Corporation (NASDAQ:LKQ) headfirst. Partner Fund Management, managed by Christopher James, established the most outsized position in LKQ Corporation (NASDAQ:LKQ). Partner Fund Management had $43.7 million invested in the company at the end of the quarter. Richard Barrera’s Roystone Capital Partners also initiated a $11 million position during the quarter. The other funds with brand new LKQ positions are William Hyatt’s Hudson Way Capital Management, Ken Grossman and Glen Schneider’s SG Capital Management, and Daniel S. Och’s OZ Management.

Let’s now take a look at hedge fund activity in other stocks similar to LKQ Corporation (NASDAQ:LKQ). We will take a look at The Ultimate Software Group, Inc. (NASDAQ:ULTI), BanColombia S.A. (NYSE:CIB), Molson Coors Brewing Company (NYSE:TAP), and Alliant Energy Corporation (NYSE:LNT). All of these stocks’ market caps are similar to LKQ’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
ULTI 25 438580 7
CIB 5 101550 0
TAP 31 557374 12
LNT 20 327530 4
Average 20.25 356259 5.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 20.25 hedge funds with bullish positions and the average amount invested in these stocks was $356 million. That figure was $1.25 billion in LKQ’s case. Molson Coors Brewing Company (NYSE:TAP) is the most popular stock in this table. On the other hand BanColombia S.A. (NYSE:CIB) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks LKQ Corporation (NASDAQ:LKQ) is more popular among hedge funds. Considering that hedge funds are fond of this stock in relation to its market cap peers, it may be a good idea to analyze it in detail and potentially include it in your portfolio.

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