Should You Avoid Advance Auto Parts, Inc. (AAP)?

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Is Advance Auto Parts, Inc. (NYSE:AAP) worth buying at today’s prices, or is it not?

In today’s marketplace, there are plenty of metrics shareholders can use to monitor stocks. A duo of the most useful are hedge fund and insider trading activity. At Insider Monkey, our studies have shown that, historically, those who follow the top picks of the top money managers can trounce the broader indices by a solid margin (see just how much).

Just as key, bullish insider trading sentiment is a second way to look at the financial markets. Obviously, there are a variety of stimuli for a corporate insider to cut shares of his or her company, but only one, very simple reason why they would initiate a purchase. Several academic studies have demonstrated the impressive potential of this tactic if investors know what to do (learn more here).

Thus, let’s analyze the newest info about Advance Auto Parts, Inc. (NYSE:AAP).

Advance Auto Parts, Inc. (NYSE:AAP)

Hedge fund activity in Advance Auto Parts, Inc. (NYSE:AAP)

At the end of the second quarter, a total of 31 of the hedge funds we track were bullish in this stock, a change of -18% from the first quarter. With hedgies’ sentiment swirling, there exists a few key hedge fund managers who were increasing their holdings substantially.

According to our 13F database, Ricky Sandler’s Eminence Capital had the biggest position in Advance Auto Parts, Inc. (NYSE:AAP), worth close to $232.1 million, comprising 5.7% of its total 13F portfolio. On Eminence Capital’s heels is Perry Capital, managed by Richard Perry, which held a $132.4 million position; the fund has 3.4% of its 13F portfolio invested in the stock. Remaining hedgies that hold long positions include Glenn Russell Dubin’s Highbridge Capital Management, Natixis Global Asset Management’s Harris Associates and Rob Citrone’s Discovery Capital Management.

Because Advance Auto Parts, Inc. (NYSE:AAP) has experienced a fall in interest from the entirety of the hedge funds we track, we can see that there was a specific group of hedge funds that elected to cut their full holdings heading into Q2. Interestingly, Larry Foley and Paul Farrell’s Bronson Point Partners cut the largest position of the “upper crust” of funds we watch, totaling close to $45.1 million in stock, and John Overdeck and David Siegel of Two Sigma Advisors was right behind this move, as the fund sold off about $19.4 million worth. These moves are important to note, as total hedge fund interest dropped by 7 funds heading into Q2.

How have insiders been trading Advance Auto Parts, Inc. (NYSE:AAP)?

Legal insider trading, particularly when it’s bullish, is particularly usable when the primary stock in question has seen transactions within the past six months. Over the latest half-year time frame, Advance Auto Parts, Inc. (NYSE:AAP) has seen zero unique insiders purchasing, and 8 insider sales (see the details of insider trades here).

We’ll also review the relationship between both of these indicators in other stocks similar to Advance Auto Parts, Inc. (NYSE:AAP). These stocks are U.S. Auto Parts Network, Inc. (NASDAQ:PRTS), The Pep Boys – Manny, Moe & Jack (NYSE:PBY), AutoZone, Inc. (NYSE:AZO), , and O’Reilly Automotive Inc (NASDAQ:ORLY). This group of stocks are the members of the auto parts stores industry and their market caps match AAP’s market cap.

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