Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (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. How do you pick the next stock to invest in? One way would be to spend days 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 Avis Budget Group Inc. (NASDAQ:CAR).
Avis Budget Group Inc. (NASDAQ:CAR) was in 27 hedge funds’ portfolios at the end of the fourth quarter of 2019. CAR investors should be aware of an increase in hedge fund interest lately. There were 23 hedge funds in our database with CAR holdings at the end of the previous quarter. Our calculations also showed that CAR isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
Today there are a lot of signals stock traders can use to analyze stocks. A pair of the most underrated signals are hedge fund and insider trading signals. Our experts have shown that, historically, those who follow the best picks of the elite fund managers can outperform the broader indices by a significant margin (see the details here).
Philippe Laffont of Coatue Management
We leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. Now we’re going to check out the recent hedge fund action regarding Avis Budget Group Inc. (NASDAQ:CAR).
Hedge fund activity in Avis Budget Group Inc. (NASDAQ:CAR)
At the end of the fourth quarter, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of 17% from one quarter earlier. By comparison, 29 hedge funds held shares or bullish call options in CAR a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Karthik Sarma’s SRS Investment Management has the most valuable position in Avis Budget Group Inc. (NASDAQ:CAR), worth close to $521.9 million, comprising 12.5% of its total 13F portfolio. Sitting at the No. 2 spot is Glenview Capital, led by Larry Robbins, holding a $232.1 million position; the fund has 2% of its 13F portfolio invested in the stock. Some other professional money managers that are bullish encompass Richard S. Pzena’s Pzena Investment Management, Renaissance Technologies and Andrew Wellington and Jeff Keswin’s Lyrical Asset Management. In terms of the portfolio weights assigned to each position SRS Investment Management allocated the biggest weight to Avis Budget Group Inc. (NASDAQ:CAR), around 12.5% of its 13F portfolio. Glenview Capital is also relatively very bullish on the stock, earmarking 2.03 percent of its 13F equity portfolio to CAR.
Now, key hedge funds were leading the bulls’ herd. Coatue Management, managed by Philippe Laffont, created the most outsized position in Avis Budget Group Inc. (NASDAQ:CAR). Coatue Management had $2 million invested in the company at the end of the quarter. Paul Marshall and Ian Wace’s Marshall Wace LLP also initiated a $1.5 million position during the quarter. The following funds were also among the new CAR investors: Jinghua Yan’s TwinBeech Capital and Matthew Hulsizer’s PEAK6 Capital Management.
Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as Avis Budget Group Inc. (NASDAQ:CAR) but similarly valued. We will take a look at National Beverage Corp. (NASDAQ:FIZZ), Invesco Mortgage Capital Inc (NYSE:IVR), Carpenter Technology Corporation (NYSE:CRS), and Prospect Capital Corporation (NASDAQ:PSEC). This group of stocks’ market valuations resemble CAR’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| FIZZ | 21 | 309323 | 5 |
| IVR | 15 | 85307 | -4 |
| CRS | 16 | 73936 | 2 |
| PSEC | 15 | 72643 | 3 |
| Average | 16.75 | 135302 | 1.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 16.75 hedge funds with bullish positions and the average amount invested in these stocks was $135 million. That figure was $1228 million in CAR’s case. National Beverage Corp. (NASDAQ:FIZZ) is the most popular stock in this table. On the other hand Invesco Mortgage Capital Inc (NYSE:IVR) is the least popular one with only 15 bullish hedge fund positions. Compared to these stocks Avis Budget Group Inc. (NASDAQ:CAR) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 13.0% in 2020 through April 6th and still beat the market by 4.2 percentage points. Unfortunately CAR wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CAR were disappointed as the stock returned -61.7% during the three months of 2020 (through April 6th) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as most of these stocks already outperformed the market in 2020.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
