Where Do Hedge Funds Stand On Advance Auto Parts, Inc. (AAP)?

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We at Insider Monkey have plowed through 873 13F filings that hedge funds and well-known value investors are required to file by the SEC. The 13F filings show the funds’ and investors’ portfolio positions as of June 30th. In this article we look at what those investors think of Advance Auto Parts, Inc. (NYSE:AAP).

Is Advance Auto Parts, Inc. (NYSE:AAP) a buy right now? The smart money was in a pessimistic mood. The number of long hedge fund positions shrunk by 9 recently. Advance Auto Parts, Inc. (NYSE:AAP) was in 34 hedge funds’ portfolios at the end of June. The all time high for this statistic is 62. Our calculations also showed that AAP isn’t among the 30 most popular stocks among hedge funds (click for Q2 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 79 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.

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Ricky Sandler of Eminence Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. With all of this in mind we’re going to take a gander at the recent hedge fund action regarding Advance Auto Parts, Inc. (NYSE:AAP).

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

Heading into the third quarter of 2021, a total of 34 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -21% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in AAP over the last 24 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

Is AAP A Good Stock To Buy?

More specifically, Eminence Capital was the largest shareholder of Advance Auto Parts, Inc. (NYSE:AAP), with a stake worth $199.2 million reported as of the end of June. Trailing Eminence Capital was Scopus Asset Management, which amassed a stake valued at $102.6 million. East Side Capital (RR Partners), Arrowstreet Capital, and Tensile Capital 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 East Side Capital (RR Partners) allocated the biggest weight to Advance Auto Parts, Inc. (NYSE:AAP), around 8.15% of its 13F portfolio. Tensile Capital is also relatively very bullish on the stock, earmarking 5.8 percent of its 13F equity portfolio to AAP.

Due to the fact that Advance Auto Parts, Inc. (NYSE:AAP) has experienced bearish sentiment from the smart money, it’s easy to see that there lies a certain “tier” of hedge funds who were dropping their entire stakes last quarter. At the top of the heap, Gabriel Plotkin’s Melvin Capital Management dropped the largest investment of the “upper crust” of funds monitored by Insider Monkey, worth close to $234 million in stock. Steven Boyd’s fund, Armistice Capital, also sold off its stock, about $50.2 million worth. These moves are important to note, as aggregate hedge fund interest dropped by 9 funds last quarter.

Let’s also examine hedge fund activity in other stocks similar to Advance Auto Parts, Inc. (NYSE:AAP). These stocks are W.P. Carey Inc. (NYSE:WPC), Mohawk Industries, Inc. (NYSE:MHK), Elastic N.V. (NYSE:ESTC), Masimo Corporation (NASDAQ:MASI), CBOE Global Markets Inc (NASDAQ:CBOE), Lennox International Inc. (NYSE:LII), and W.R. Berkley Corporation (NYSE:WRB). This group of stocks’ market values are similar to AAP’s market value.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
WPC 29 147455 6
MHK 44 1311640 8
ESTC 55 3062021 3
MASI 28 317268 -7
CBOE 31 826143 -2
LII 26 465734 1
WRB 36 648828 4
Average 35.6 968441 1.9

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.6 hedge funds with bullish positions and the average amount invested in these stocks was $968 million. That figure was $850 million in AAP’s case. Elastic N.V. (NYSE:ESTC) is the most popular stock in this table. On the other hand Lennox International Inc. (NYSE:LII) is the least popular one with only 26 bullish hedge fund positions. Advance Auto Parts, Inc. (NYSE:AAP) is not the least popular stock in this group but hedge fund interest is still below average. Our overall hedge fund sentiment score for AAP is 26.2. 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 gained 21.8% in 2021 through October 11th and still beat the market by 4.4 percentage points. A small number of hedge funds were also right about betting on AAP as the stock returned 3.9% since the end of the second quarter (through 10/11) and outperformed the market by an even larger margin.

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