Were Hedge Funds Right About Advance Auto Parts, Inc. (AAP)?

Stocks, especially the once high flying technology stocks, had a lousy start to the new year. QQQ lost 9% of its value in January. We aren’t certain about the bubbly technology stocks that trade for ridiculously high multiples of their revenues, but we believe top hedge fund stocks will deliver positive returns for the rest of the year. In this article, we will take a closer look at hedge fund sentiment towards Advance Auto Parts, Inc. (NYSE:AAP) at the end of the third quarter and determine whether the smart money was really smart about this stock.

Advance Auto Parts, Inc. (NYSE:AAP) was in 35 hedge funds’ portfolios at the end of September. The all time high for this statistic is 62. AAP shareholders have witnessed an increase in hedge fund interest of late. There were 34 hedge funds in our database with AAP holdings at the end of June. Our calculations also showed that AAP isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so we go through lists like the 10 best EV 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. With all of this in mind we’re going to check out the key hedge fund action regarding Advance Auto Parts, Inc. (NYSE:AAP).

Noam Gottesman GLG Partners

Noam Gottesman of GLG Partners

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

At the end of the third quarter, a total of 35 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 3% from the second quarter of 2021. The graph below displays the number of hedge funds with bullish position in AAP over the last 25 quarters. So, let’s review which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Of the funds tracked by Insider Monkey, Ken Griffin’s Citadel Investment Group has the biggest position in Advance Auto Parts, Inc. (NYSE:AAP), worth close to $123.6 million, amounting to less than 0.1%% of its total 13F portfolio. Coming in second is Israel Englander of Millennium Management, with a $110.1 million position; 0.1% of its 13F portfolio is allocated to the stock. Other peers that are bullish include Ricky Sandler’s Eminence Capital, Peter Simmie’s Bristol Gate Capital Partners and Phill Gross and Robert Atchinson’s Adage Capital Management. In terms of the portfolio weights assigned to each position Tensile Capital allocated the biggest weight to Advance Auto Parts, Inc. (NYSE:AAP), around 6.03% of its 13F portfolio. Bristol Gate Capital Partners is also relatively very bullish on the stock, setting aside 4.45 percent of its 13F equity portfolio to AAP.

As industrywide interest jumped, some big names were breaking ground themselves. Bristol Gate Capital Partners, managed by Peter Simmie, assembled the largest position in Advance Auto Parts, Inc. (NYSE:AAP). Bristol Gate Capital Partners had $86.6 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $13.8 million position during the quarter. The other funds with new positions in the stock are Lee Ainslie’s Maverick Capital, Paul Tudor Jones’s Tudor Investment Corp, and Noam Gottesman’s GLG Partners.

Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as Advance Auto Parts, Inc. (NYSE:AAP) but similarly valued. These stocks are Packaging Corporation Of America (NYSE:PKG), Telefonica Brasil SA (NYSE:VIV), The J.M. Smucker Company (NYSE:SJM), W.R. Berkley Corporation (NYSE:WRB), Fidelity National Financial Inc (NYSE:FNF), Lincoln National Corporation (NYSE:LNC), and SoFi Technologies Inc. (NASDAQ:SOFI). All of these stocks’ market caps match AAP’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PKG 26 281022 -5
VIV 5 42334 -4
SJM 25 506030 -9
WRB 26 593633 -10
FNF 32 1390536 -2
LNC 29 734657 -1
SOFI 33 852850 33
Average 25.1 628723 0.3

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.1 hedge funds with bullish positions and the average amount invested in these stocks was $629 million. That figure was $899 million in AAP’s case. SoFi Technologies Inc. (NASDAQ:SOFI) is the most popular stock in this table. On the other hand Telefonica Brasil SA (NYSE:VIV) is the least popular one with only 5 bullish hedge fund positions. Compared to these stocks Advance Auto Parts, Inc. (NYSE:AAP) is more popular among hedge funds. Our overall hedge fund sentiment score for AAP is 72.9. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks returned 29.6% in 2021 and managed to beat the market by another 3.6 percentage points. Hedge funds were also right about betting on AAP as the stock returned 11.3% since the end of September (through 1/31) and outperformed the market by an even larger margin. Hedge funds were clearly right about piling into this stock relative to other stocks with similar market capitalizations.

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