Smart Money Is Losing Confidence in AutoZone, Inc. (AZO)

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track more than 700 prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile gigantic failures like hedge funds’ recent losses in Valeant. Let’s take a closer look at what the funds we track think about AutoZone, Inc. (NYSE:AZO) in this article.

Is AutoZone, Inc. (NYSE:AZO) undervalued? Prominent investors are taking a pessimistic view. The number of long hedge fund bets went down by 2 lately. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Telefonica Brasil SA (ADR) (NYSE:VIV), Electronic Arts Inc. (NASDAQ:EA), and Koninklijke Philips Electronics NV (ADR) (NYSE:PHG) to gather more data points.

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At Insider Monkey, we’ve developed an investment strategy that has delivered market-beating returns over the past 12 months. Our strategy identifies the 100 best-performing funds of the previous quarter from among the collection of 700+ successful funds that we track in our database, which we accomplish using our returns methodology. We then study the portfolios of those 100 funds using the latest 13F data to uncover the 30 most popular mid-cap stocks (market caps of between $1 billion and $10 billion) among them to hold until the next filing period. This strategy delivered 18% gains over the past 12 months, more than doubling the 8% returns enjoyed by the S&P 500 ETFs.

Keeping this in mind, let’s take a look at the key action surrounding AutoZone, Inc. (NYSE:AZO).

What does the smart money think about AutoZone, Inc. (NYSE:AZO)?

At the end of the third quarter, a total of 39 of the hedge funds tracked by Insider Monkey were bullish on this stock, a drop of 5% from the second quarter of 2016, which followed an even steeper drop in the second quarter. With hedge funds’ sentiment swirling, there exists a few key hedge fund managers who were increasing their holdings significantly (or already accumulated large positions).
According to Insider Monkey’s hedge fund database, Hudson Bay Capital Management, managed by Sander Gerber, holds the most valuable position in AutoZone, Inc. (NYSE:AZO). Hudson Bay Capital Management has a $189 million call position in the stock, comprising 4.5% of its 13F portfolio. Coming in second is Chilton Investment Company, managed by Richard Chilton, which holds a $129.5 million position; the fund has 5.1% of its 13F portfolio invested in the stock. Some other members of the smart money with similar optimism comprise Paul Marshall and Ian Wace’s Marshall Wace LLP and John Overdeck and David Siegel’s Two Sigma Advisors.

Because AutoZone, Inc. (NYSE:AZO) has witnessed a decline in interest from the aggregate hedge fund industry, it’s easy to see that there lies a certain “tier” of hedgies who sold off their positions entirely by the end of the third quarter. Intriguingly, Anand Parekh’s Alyeska Investment Group dropped the biggest stake of the 700 funds watched by Insider Monkey, comprising about $43.4 million in call options, and Ken Griffin’s Citadel Investment Group was right behind this move, as the fund cut about $43.2 million worth of shares. These moves are important to note, as aggregate hedge fund interest fell by 2 funds by the end of the third quarter.

Let’s now review hedge fund activity in other stocks similar to AutoZone, Inc. (NYSE:AZO). We will take a look at Telefonica Brasil SA (ADR) (NYSE:VIV), Electronic Arts Inc. (NASDAQ:EA), Koninklijke Philips Electronics NV (ADR) (NYSE:PHG), and Xcel Energy Inc (NYSE:XEL). This group of stocks’ market caps are similar to AZO’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
VIV 11 158140 1
EA 61 3011540 3
PHG 10 200236 -4
XEL 14 433249 0

As you can see these stocks had an average of 24 hedge funds with bullish positions and the average amount invested in these stocks was $951 million. That figure was $1.30 billion in AZO’s case. Electronic Arts Inc. (NASDAQ:EA) is the most popular stock in this table. On the other hand Koninklijke Philips Electronics NV (ADR) (NYSE:PHG) is the least popular one with only 10 bullish hedge fund positions. AutoZone, Inc. (NYSE:AZO) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard EA might be a better candidate to consider a long position in.

Disclosure: None