Did The Smart Money Play LKQ Corporation (LKQ) Correctly?

We know that hedge funds generate strong, risk-adjusted returns over the long run, which is why imitating the picks that they are collectively bullish on can be a profitable strategy for retail investors. With billions of dollars in assets, professional investors have to conduct complex analyses, spend many resources and use tools that are not always available for the general crowd. This doesn’t mean that they don’t have occasional colossal losses; they do. However, it is still a good idea to keep an eye on hedge fund activity. With this in mind, let’s examine the smart money sentiment towards LKQ Corporation (NASDAQ:LKQ) and determine whether hedge funds skillfully traded this stock.

Is LKQ Corporation (NASDAQ:LKQ) ready to rally soon? The smart money was in a bullish mood. The number of bullish hedge fund positions advanced by 3 recently. LKQ Corporation (NASDAQ:LKQ) was in 38 hedge funds’ portfolios at the end of September. The all time high for this statistic is 52. Our calculations also showed that LKQ isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings).

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 let’s take a peek at the latest hedge fund action regarding LKQ Corporation (NASDAQ:LKQ).

Bruce Kovner of Caxton Associates LP

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

At the end of the third quarter, a total of 38 of the hedge funds tracked by Insider Monkey were long this stock, a change of 9% from the previous quarter. By comparison, 51 hedge funds held shares or bullish call options in LKQ a year ago. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of notable hedge fund managers who were increasing their stakes meaningfully (or already accumulated large positions).

Among these funds, ValueAct Capital held the most valuable stake in LKQ Corporation (NASDAQ:LKQ), which was worth $1084.4 million at the end of the third quarter. On the second spot was Arrowstreet Capital which amassed $249 million worth of shares. 12th Street Asset Management, Wallace R. Weitz & Co., and Millennium 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 ValueAct Capital allocated the biggest weight to LKQ Corporation (NASDAQ:LKQ), around 12.56% of its 13F portfolio. 12th Street Asset Management is also relatively very bullish on the stock, earmarking 8.41 percent of its 13F equity portfolio to LKQ.

As one would reasonably expect, key hedge funds have been driving this bullishness. TwinBeech Capital, managed by Jinghua Yan, created the biggest position in LKQ Corporation (NASDAQ:LKQ). TwinBeech Capital had $5.6 million invested in the company at the end of the quarter. Michael Gelband’s ExodusPoint Capital also made a $2.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Paul Marshall and Ian Wace’s Marshall Wace LLP, Paul Tudor Jones’s Tudor Investment Corp, and Bruce Kovner’s Caxton Associates LP.

Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as LKQ Corporation (NASDAQ:LKQ) but similarly valued. These stocks are ABIOMED, Inc. (NASDAQ:ABMD), KANZHUN LIMITED (NASDAQ:BZ), NortonLifeLock Inc. (NASDAQ:NLOK), Plug Power, Inc. (NASDAQ:PLUG), CenterPoint Energy, Inc. (NYSE:CNP), Albertsons Companies, Inc. (NYSE:ACI), and Apollo Global Management Inc (NYSE:APO). This group of stocks’ market values match LKQ’s market value.

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As you can see these stocks had an average of 25.6 hedge funds with bullish positions and the average amount invested in these stocks was $1570 million. That figure was $1695 million in LKQ’s case. Apollo Global Management Inc (NYSE:APO) is the most popular stock in this table. On the other hand CenterPoint Energy, Inc. (NYSE:CNP) is the least popular one with only 14 bullish hedge fund positions. LKQ Corporation (NASDAQ:LKQ) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for LKQ 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. 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 still beat the market by 3.6 percentage points. Hedge funds were also right about betting on LKQ as the stock returned 9.6% since the end of Q3 (through 1/31) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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