Is O’Reilly Automotive (ORLY) Stock A Buy or Sell?

Is O’Reilly Automotive Inc (NASDAQ:ORLY) a good place to invest some of your money right now? We can gain invaluable insight to help us answer that question by studying the investment trends of top investors, who employ world-class Ivy League graduates, who are given immense resources and industry contacts to put their financial expertise to work. The top picks of these firms have historically outperformed the market when we account for known risk factors, making them very valuable investment ideas.

Is ORLY stock a buy or sell? O’Reilly Automotive Inc (NASDAQ:ORLY) was in 49 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 64. ORLY has seen a decrease in hedge fund interest in recent months. There were 58 hedge funds in our database with ORLY positions at the end of the third quarter. Our calculations also showed that ORLY isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 124 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’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 17th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. 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 homepage (or at the end of this article). Now let’s analyze the new hedge fund action regarding O’Reilly Automotive Inc (NASDAQ:ORLY).

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

Heading into the first quarter of 2021, a total of 49 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -16% from the previous quarter. The graph below displays the number of hedge funds with bullish position in ORLY over the last 22 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Akre Capital Management was the largest shareholder of O’Reilly Automotive Inc (NASDAQ:ORLY), with a stake worth $832.6 million reported as of the end of December. Trailing Akre Capital Management was D1 Capital Partners, which amassed a stake valued at $451.2 million. Diamond Hill Capital, Two Sigma 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 Akre Capital Management allocated the biggest weight to O’Reilly Automotive Inc (NASDAQ:ORLY), around 5.63% of its 13F portfolio. Masterton Capital Management is also relatively very bullish on the stock, dishing out 5.4 percent of its 13F equity portfolio to ORLY.

Because O’Reilly Automotive Inc (NASDAQ:ORLY) has experienced a decline in interest from the aggregate hedge fund industry, logic holds that there exists a select few money managers who were dropping their positions entirely heading into Q1. At the top of the heap, Bo Shan’s Gobi Capital cut the largest stake of all the hedgies watched by Insider Monkey, worth close to $59.2 million in stock, and Christopher Weldon’s Stamina Capital Management was right behind this move, as the fund sold off about $25.4 million worth. These moves are important to note, as total hedge fund interest fell by 9 funds heading into Q1.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as O’Reilly Automotive Inc (NASDAQ:ORLY) but similarly valued. These stocks are Yum! Brands, Inc. (NYSE:YUM), Carrier Global Corporation (NYSE:CARR), American International Group Inc (NYSE:AIG), Banco Santander (Brasil) SA (NYSE:BSBR), Mizuho Financial Group Inc. (NYSE:MFG), Alcon Inc. (NYSE:ALC), and Tencent Music Entertainment Group (NYSE:TME). All of these stocks’ market caps are similar to ORLY’s market cap.

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As you can see these stocks had an average of 26.7 hedge funds with bullish positions and the average amount invested in these stocks was $1010 million. That figure was $2416 million in ORLY’s case. Carrier Global Corporation (NYSE:CARR) is the most popular stock in this table. On the other hand Mizuho Financial Group Inc. (NYSE:MFG) is the least popular one with only 5 bullish hedge fund positions. O’Reilly Automotive Inc (NASDAQ:ORLY) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ORLY is 65.8. 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 ORLY as the stock returned 7.9% since the end of Q4 (through 3/19) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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

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