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Were Hedge Funds Right About Piling Into Copart, Inc. (CPRT)?

How do you pick the next stock to invest in? One way would be to spend days of research browsing through thousands of publicly traded companies. However, an easier way is to look at the stocks that smart money investors are collectively bullish on. Hedge funds and other institutional investors usually invest large amounts of capital and have to conduct due diligence while choosing their next pick. They don’t always get it right, but, on average, their stock picks historically generated strong returns after adjusting for known risk factors. With this in mind, let’s take a look at the recent hedge fund activity surrounding Copart, Inc. (NASDAQ:CPRT) and determine whether hedge funds had an edge regarding this stock.

Copart, Inc. (NASDAQ:CPRT) investors should be aware of an increase in hedge fund sentiment in recent months. Our calculations also showed that CPRT isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks).

Video: Watch our video about the top 5 most popular hedge fund stocks.

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 101% since March 2017 and outperformed the S&P 500 ETFs by more than 58 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.

John Overdeck of Two Sigma

John Overdeck of Two Sigma Advisors

At Insider Monkey we scour multiple sources to uncover the next great investment idea. For example, this trader claims to score lucrative profits by utilizing a “weekend trading strategy”, so we look into his strategy’s picks. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost gold prices. So, we are checking out this junior gold mining stock. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller’s investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. Keeping this in mind we’re going to take a look at the recent hedge fund action encompassing Copart, Inc. (NASDAQ:CPRT).

How have hedgies been trading Copart, Inc. (NASDAQ:CPRT)?

Heading into the second quarter of 2020, a total of 48 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 4% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards CPRT over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is CPRT A Good Stock To Buy?

According to Insider Monkey’s hedge fund database, Melvin Capital Management, managed by Gabriel Plotkin, holds the most valuable position in Copart, Inc. (NASDAQ:CPRT). Melvin Capital Management has a $324.2 million position in the stock, comprising 2.6% of its 13F portfolio. The second largest stake is held by Bo Shan of Gobi Capital, with a $55.5 million position; the fund has 7.7% of its 13F portfolio invested in the stock. Other professional money managers that are bullish comprise Greg Poole’s Echo Street Capital Management, Seth Rosen’s Nitorum Capital and Jack Woodruff’s Candlestick Capital Management. In terms of the portfolio weights assigned to each position Gobi Capital allocated the biggest weight to Copart, Inc. (NASDAQ:CPRT), around 7.67% of its 13F portfolio. Bayberry Capital Partners is also relatively very bullish on the stock, earmarking 6.17 percent of its 13F equity portfolio to CPRT.

With a general bullishness amongst the heavyweights, specific money managers were leading the bulls’ herd. Gobi Capital, managed by Bo Shan, created the most outsized position in Copart, Inc. (NASDAQ:CPRT). Gobi Capital had $55.5 million invested in the company at the end of the quarter. Jack Woodruff’s Candlestick Capital Management also made a $32.5 million investment in the stock during the quarter. The other funds with new positions in the stock are Richard Merage’s MIG Capital, Lee Hicks and Jan Koerner’s Park Presidio Capital, and Angela Aldrich’s Bayberry Capital Partners.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Copart, Inc. (NASDAQ:CPRT) but similarly valued. These stocks are FleetCor Technologies, Inc. (NYSE:FLT), Incyte Corporation (NASDAQ:INCY), Northern Trust Corporation (NASDAQ:NTRS), and Church & Dwight Co., Inc. (NYSE:CHD). This group of stocks’ market values are similar to CPRT’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
FLT 51 1655053 7
INCY 40 3325488 -6
NTRS 27 330348 -8
CHD 36 506943 -1
Average 38.5 1454458 -2

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.5 hedge funds with bullish positions and the average amount invested in these stocks was $1454 million. That figure was $733 million in CPRT’s case. FleetCor Technologies, Inc. (NYSE:FLT) is the most popular stock in this table. On the other hand Northern Trust Corporation (NASDAQ:NTRS) is the least popular one with only 27 bullish hedge fund positions. Copart, Inc. (NASDAQ:CPRT) is not the most popular stock in this group but hedge fund interest is still above average. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.3% in 2020 through June 30th but still beat the market by 15.5 percentage points. Hedge funds were also right about betting on CPRT, though not to the same extent, as the stock returned 21.5% during the second quarter and outperformed the market as well.

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