Was The Smart Money Right About CarMax Inc (KMX)?

In this article we will analyze whether CarMax Inc (NYSE:KMX) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.

CarMax Inc (NYSE:KMX) was in 46 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 54. KMX investors should pay attention to a decrease in hedge fund interest in recent months. There were 54 hedge funds in our database with KMX holdings at the end of September. Our calculations also showed that KMX 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). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.


Dan Loeb of Third Point

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

At Q4’s end, a total of 46 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from the third quarter of 2020. The graph below displays the number of hedge funds with bullish position in KMX over the last 22 quarters. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is KMX A Good Stock To Buy?

More specifically, Akre Capital Management was the largest shareholder of CarMax Inc (NYSE:KMX), with a stake worth $706.5 million reported as of the end of December. Trailing Akre Capital Management was Third Point, which amassed a stake valued at $120.4 million. Giverny Capital, Viking Global, and Appaloosa Management LP 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 Silver Heights Capital Management allocated the biggest weight to CarMax Inc (NYSE:KMX), around 16.05% of its 13F portfolio. Lansing Management is also relatively very bullish on the stock, dishing out 13.75 percent of its 13F equity portfolio to KMX.

Due to the fact that CarMax Inc (NYSE:KMX) has experienced a decline in interest from the smart money, it’s easy to see that there was a specific group of hedge funds that elected to cut their positions entirely last quarter. At the top of the heap, Jack Woodruff’s Candlestick Capital Management sold off the largest position of the “upper crust” of funds tracked by Insider Monkey, worth close to $20.7 million in stock. Robert Boucai’s fund, Newbrook Capital Advisors, also said goodbye to its stock, about $20.5 million worth. These moves are important to note, as total hedge fund interest was cut by 8 funds last quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as CarMax Inc (NYSE:KMX) but similarly valued. These stocks are Shinhan Financial Group Co., Ltd. (NYSE:SHG), Waters Corporation (NYSE:WAT), Hewlett Packard Enterprise Company (NYSE:HPE), Citizens Financial Group Inc (NYSE:CFG), 10x Genomics, Inc. (NASDAQ:TXG), Celanese Corporation (NYSE:CE), and NVR, Inc. (NYSE:NVR). All of these stocks’ market caps are closest to KMX’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SHG 7 27734 3
WAT 30 1993478 -2
HPE 30 923308 -4
CFG 38 453830 2
TXG 33 745283 2
CE 33 997491 7
NVR 46 1430464 4
Average 31 938798 1.7

View table here if you experience formatting issues.

As you can see these stocks had an average of 31 hedge funds with bullish positions and the average amount invested in these stocks was $939 million. That figure was $1486 million in KMX’s case. NVR, Inc. (NYSE:NVR) is the most popular stock in this table. On the other hand Shinhan Financial Group Co., Ltd. (NYSE:SHG) is the least popular one with only 7 bullish hedge fund positions. CarMax Inc (NYSE:KMX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for KMX is 72.6. 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 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on KMX as the stock returned 41.1% since the end of Q4 (through 4/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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