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Were Hedge Funds Right About Group 1 Automotive, Inc. (GPI) ?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. We at Insider Monkey have gone over 835 13F filings that hedge funds and prominent investors are required to file by the SEC The 13F filings show the funds’ and investors’ portfolio positions as of December 31st. In this article, we look at what those funds think of Group 1 Automotive, Inc. (NYSE:GPI) based on that data.

Is Group 1 Automotive, Inc. (NYSE:GPI) an exceptional investment today? Investors who are in the know are in an optimistic mood. The number of long hedge fund positions inched up by 1 recently. Our calculations also showed that GPI isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

Ricky Sandler of Eminence Capital

With all of this in mind let’s take a look at the fresh hedge fund action encompassing Group 1 Automotive, Inc. (NYSE:GPI).

Hedge fund activity in Group 1 Automotive, Inc. (NYSE:GPI)

Heading into the first quarter of 2020, a total of 22 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 5% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards GPI over the last 18 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were adding to their stakes substantially (or already accumulated large positions).

Among these funds, Eminence Capital held the most valuable stake in Group 1 Automotive, Inc. (NYSE:GPI), which was worth $91 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $23.2 million worth of shares. Winton Capital Management, Citadel Investment Group, and Marshall Wace LLP 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 Eminence Capital allocated the biggest weight to Group 1 Automotive, Inc. (NYSE:GPI), around 1.02% of its 13F portfolio. GRT Capital Partners is also relatively very bullish on the stock, earmarking 0.31 percent of its 13F equity portfolio to GPI.

As one would reasonably expect, key hedge funds have been driving this bullishness. Balyasny Asset Management, managed by Dmitry Balyasny, initiated the biggest position in Group 1 Automotive, Inc. (NYSE:GPI). Balyasny Asset Management had $1.1 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also made a $0.7 million investment in the stock during the quarter. The only other fund with a new position in the stock is D. E. Shaw’s D E Shaw.

Let’s now review hedge fund activity in other stocks similar to Group 1 Automotive, Inc. (NYSE:GPI). We will take a look at Portola Pharmaceuticals Inc (NASDAQ:PTLA), Progress Software Corporation (NASDAQ:PRGS), McGrath RentCorp (NASDAQ:MGRC), and O-I Glass, Inc. (NYSE:OI). This group of stocks’ market caps are similar to GPI’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
PTLA 27 221821 4
PRGS 20 222597 -2
MGRC 20 150034 -2
OI 20 504837 -4
Average 21.75 274822 -1

View table here if you experience formatting issues.

As you can see these stocks had an average of 21.75 hedge funds with bullish positions and the average amount invested in these stocks was $275 million. That figure was $174 million in GPI’s case. Portola Pharmaceuticals Inc (NASDAQ:PTLA) is the most popular stock in this table. On the other hand Progress Software Corporation (NASDAQ:PRGS) is the least popular one with only 20 bullish hedge fund positions. Group 1 Automotive, Inc. (NYSE:GPI) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th but beat the market by 4.2 percentage points. Unfortunately GPI wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on GPI were disappointed as the stock returned -58.4% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

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

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