How do you pick the next stock to invest in? One way would be to spend hours 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 AutoNation, Inc. (NYSE:AN).
Is AutoNation, Inc. (NYSE:AN) an outstanding investment now? The smart money is taking a bullish view. The number of bullish hedge fund bets increased by 1 recently. Our calculations also showed that AN isn’t among the 30 most popular stocks among hedge funds. AN was in 24 hedge funds’ portfolios at the end of the third quarter of 2018. There were 23 hedge funds in our database with AN positions at the end of the previous quarter.
Why do we pay any attention at all to hedge fund sentiment? Our research has shown that hedge funds’ large-cap stock picks indeed failed to beat the market between 1999 and 2016. However, we were able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 24% through December 3, 2018. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Let’s take a glance at the fresh hedge fund action regarding AutoNation, Inc. (NYSE:AN).
What does the smart money think about AutoNation, Inc. (NYSE:AN)?
At the end of the third quarter, a total of 24 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 4% from one quarter earlier. By comparison, 21 hedge funds held shares or bullish call options in AN heading into this year. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, ESL Investments was the largest shareholder of AutoNation, Inc. (NYSE:AN), with a stake worth $150.1 million reported as of the end of September. Trailing ESL Investments was Bill & Melinda Gates Foundation Trust, which amassed a stake valued at $78.9 million. Arlington Value Capital, GAMCO Investors, and Water Street Capital were also very fond of the stock, giving the stock large weights in their portfolios.
With a general bullishness amongst the heavyweights, key hedge funds have jumped into AutoNation, Inc. (NYSE:AN) headfirst. Renaissance Technologies, managed by Jim Simons, created the biggest position in AutoNation, Inc. (NYSE:AN). Renaissance Technologies had $1.5 million invested in the company at the end of the quarter. Brandon Haley’s Holocene Advisors also made a $0.7 million investment in the stock during the quarter. The other funds with brand new AN positions are Bruce Kovner’s Caxton Associates LP, George Hall’s Clinton Group, and David Costen Haley’s HBK Investments.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as AutoNation, Inc. (NYSE:AN) but similarly valued. We will take a look at BankUnited, Inc. (NYSE:BKU), Spire Inc. (NYSE:SR), Sunstone Hotel Investors Inc (NYSE:SHO), and Valley National Bancorp (NASDAQ:VLY). This group of stocks’ market valuations match AN’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BKU | 27 | 570820 | 5 |
| SR | 15 | 96507 | 2 |
| SHO | 9 | 30255 | -3 |
| VLY | 8 | 17143 | 0 |
| Average | 14.75 | 178681 | 1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 14.75 hedge funds with bullish positions and the average amount invested in these stocks was $179 million. That figure was $430 million in AN’s case. BankUnited, Inc. (NYSE:BKU) is the most popular stock in this table. On the other hand Valley National Bancorp (NASDAQ:VLY) is the least popular one with only 8 bullish hedge fund positions. AutoNation, Inc. (NYSE:AN) 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. In this regard BKU might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
