Did Hedge Funds Make The Right Call On Penske Automotive Group, Inc. (PAG) ?

At the end of February we announced the arrival of the first US recession since 2009 and we predicted that the market will decline by at least 20% in (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. In this article, we will take a closer look at hedge fund sentiment towards Penske Automotive Group, Inc. (NYSE:PAG) at the end of the first quarter and determine whether the smart money was really smart about this stock.

Penske Automotive Group, Inc. (NYSE:PAG) investors should pay attention to a decrease in support from the world’s most elite money managers of late. Our calculations also showed that PAG 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.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (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 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Donald Sussman of Paloma Partners

At Insider Monkey we scour multiple sources to uncover the next great investment idea. With Federal Reserve creating trillions of dollars out of thin air, we believe gold prices will keep increasing. So, we are checking out gold stocks like this small gold mining company. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. 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. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. With all of this in mind let’s take a look at the key hedge fund action encompassing Penske Automotive Group, Inc. (NYSE:PAG).

How have hedgies been trading Penske Automotive Group, Inc. (NYSE:PAG)?

Heading into the second quarter of 2020, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -34% from one quarter earlier. On the other hand, there were a total of 18 hedge funds with a bullish position in PAG a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their stakes significantly (or already accumulated large positions).

According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Mario Gabelli’s GAMCO Investors has the number one position in Penske Automotive Group, Inc. (NYSE:PAG), worth close to $14.2 million, accounting for 0.2% of its total 13F portfolio. Sitting at the No. 2 spot is Ken Griffin of Citadel Investment Group, with a $13.3 million position; less than 0.1%% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors with similar optimism comprise Israel Englander’s Millennium Management, Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Moon Capital allocated the biggest weight to Penske Automotive Group, Inc. (NYSE:PAG), around 0.52% of its 13F portfolio. GAMCO Investors is also relatively very bullish on the stock, earmarking 0.17 percent of its 13F equity portfolio to PAG.

Since Penske Automotive Group, Inc. (NYSE:PAG) has faced a decline in interest from the aggregate hedge fund industry, logic holds that there is a sect of money managers who were dropping their positions entirely in the first quarter. Interestingly, Minhua Zhang’s Weld Capital Management dumped the largest position of the 750 funds watched by Insider Monkey, worth an estimated $0.8 million in stock. Charles Davidson and Joseph Jacobs’s fund, Wexford Capital, also cut its stock, about $0.7 million worth. These moves are intriguing to say the least, as total hedge fund interest was cut by 10 funds in the first quarter.

Let’s also examine hedge fund activity in other stocks similar to Penske Automotive Group, Inc. (NYSE:PAG). We will take a look at Cloudera, Inc. (NYSE:CLDR), Atlantica Sustainable Infrastructure plc (NASDAQ:AY), Brooks Automation, Inc. (NASDAQ:BRKS), and Mercury General Corporation (NYSE:MCY). This group of stocks’ market values resemble PAG’s market value.

View table here if you experience formatting issues.

As you can see these stocks had an average of 19.75 hedge funds with bullish positions and the average amount invested in these stocks was $238 million. That figure was $69 million in PAG’s case. Cloudera, Inc. (NYSE:CLDR) is the most popular stock in this table. On the other hand Atlantica Sustainable Infrastructure plc (NASDAQ:AY) is the least popular one with only 13 bullish hedge fund positions. Penske Automotive Group, Inc. (NYSE:PAG) is not the least popular stock in this group but hedge fund interest is still below 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 18.6% in 2020 through July 27th and still beat the market by 17.1 percentage points. A small number of hedge funds were also right about betting on PAG as the stock returned 68.3% since the end of March and outperformed the market by an even larger margin.

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