Technology stocks had a lousy start to 2022. QQQ lost 9% of its value in January. Pandemic winners are getting crushed while energy stocks are surging. Roblox lost 36%, Moderna lost 33%, and Carvana and Shopify lost 30% of their values in January. We aren’t certain about the bubbly technology stocks that trade for ridiculously high multiples of their revenues, but we believe top hedge fund stocks will deliver positive returns for the rest of the year. In this article, we will take a closer look at hedge fund sentiment towards IAA, Inc. (NYSE:IAA) at the end of the third quarter and determine whether the smart money was really smart about this stock.
Hedge fund interest in IAA, Inc. (NYSE:IAA) shares was flat at the end of last quarter. This is usually a negative indicator. Our calculations also showed that IAA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Alaska Air Group, Inc. (NYSE:ALK), PVH Corp (NYSE:PVH), and Pearson PLC (NYSE:PSO) to gather more data points.
Jeffrey Gates of Gates Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so 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. Keeping this in mind we’re going to view the new hedge fund action regarding IAA, Inc. (NYSE:IAA).
Do Hedge Funds Think IAA Is A Good Stock To Buy Now?
At third quarter’s end, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from the second quarter of 2021. On the other hand, there were a total of 36 hedge funds with a bullish position in IAA a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Melvin Capital Management held the most valuable stake in IAA, Inc. (NYSE:IAA), which was worth $267.4 million at the end of the third quarter. On the second spot was Melvin Capital Management which amassed $185.5 million worth of shares. Gates Capital Management, Citadel Investment Group, and Candlestick Capital Management 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 Gates Capital Management allocated the biggest weight to IAA, Inc. (NYSE:IAA), around 2.76% of its 13F portfolio. Intrepid Capital Management is also relatively very bullish on the stock, dishing out 1.77 percent of its 13F equity portfolio to IAA.
Since IAA, Inc. (NYSE:IAA) has experienced declining sentiment from the aggregate hedge fund industry, it’s easy to see that there exists a select few hedge funds who sold off their entire stakes by the end of the third quarter. Interestingly, Frank Fu’s CaaS Capital dropped the biggest stake of the “upper crust” of funds watched by Insider Monkey, totaling about $23.4 million in stock. Peter Rathjens, Bruce Clarke and John Campbell’s fund, Arrowstreet Capital, also sold off its stock, about $16.5 million worth. These transactions are important to note, as total hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as IAA, Inc. (NYSE:IAA) but similarly valued. These stocks are Alaska Air Group, Inc. (NYSE:ALK), PVH Corp (NYSE:PVH), Pearson PLC (NYSE:PSO), Chemed Corporation (NYSE:CHE), Legend Biotech Corporation (NASDAQ:LEGN), OneMain Holdings Inc (NYSE:OMF), and Plains All American Pipeline, L.P. (NYSE:PAA). This group of stocks’ market caps are similar to IAA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ALK | 41 | 647583 | 3 |
| PVH | 38 | 2157407 | 10 |
| PSO | 8 | 15064 | 1 |
| CHE | 20 | 272040 | -10 |
| LEGN | 14 | 947002 | -5 |
| OMF | 41 | 1047061 | 0 |
| PAA | 7 | 51655 | 0 |
| Average | 24.1 | 733973 | -0.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.1 hedge funds with bullish positions and the average amount invested in these stocks was $734 million. That figure was $715 million in IAA’s case. Alaska Air Group, Inc. (NYSE:ALK) is the most popular stock in this table. On the other hand Plains All American Pipeline, L.P. (NYSE:PAA) is the least popular one with only 7 bullish hedge fund positions. IAA, Inc. (NYSE:IAA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for IAA is 66.3. 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. 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 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 29.6% in 2021 and beat the market again by 3.6 percentage points. Unfortunately, IAA wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on IAA were disappointed as the stock returned -15.8% since the end of September (through 1/31) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as all of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.
