Last year we predicted the arrival of the first US recession since 2009 and we told in advance that the market will decline by at least 20% in (Recession is Imminent: We Need A Travel Ban NOW). 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 KAR Auction Services Inc (NYSE:KAR).
KAR Auction Services Inc (NYSE:KAR) has experienced an increase in hedge fund interest in recent months. KAR Auction Services Inc (NYSE:KAR) was in 26 hedge funds’ portfolios at the end of September. The all time high for this statistic is 44. Our calculations also showed that KAR 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 we’re going to analyze the latest hedge fund action encompassing KAR Auction Services Inc (NYSE:KAR).
Fred DiSanto of Ancora Advisors
Do Hedge Funds Think KAR Is A Good Stock To Buy Now?
At the end of September, a total of 26 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the second quarter of 2021. On the other hand, there were a total of 41 hedge funds with a bullish position in KAR 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.
According to publicly available hedge fund and institutional investor holdings data compiled by Insider Monkey, Cardinal Capital, managed by Amy Minella, holds the biggest position in KAR Auction Services Inc (NYSE:KAR). Cardinal Capital has a $102.2 million position in the stock, comprising 2.5% of its 13F portfolio. The second most bullish fund manager is David Paradice of Paradice Investment Management, with a $84.5 million position; the fund has 3.8% of its 13F portfolio invested in the stock. Some other peers that are bullish comprise David Brown’s Hawk Ridge Management, Renaissance Technologies and John Overdeck and David Siegel’s Two Sigma Advisors. In terms of the portfolio weights assigned to each position Paradice Investment Management allocated the biggest weight to KAR Auction Services Inc (NYSE:KAR), around 3.82% of its 13F portfolio. Cumberland Associates / Springowl Associates is also relatively very bullish on the stock, setting aside 3.09 percent of its 13F equity portfolio to KAR.
As industrywide interest jumped, key hedge funds have been driving this bullishness. Hawk Ridge Management, managed by David Brown, established the most valuable position in KAR Auction Services Inc (NYSE:KAR). Hawk Ridge Management had $43.1 million invested in the company at the end of the quarter. Jack Woodruff’s Candlestick Capital Management also made a $15.2 million investment in the stock during the quarter. The following funds were also among the new KAR investors: Frederick DiSanto’s Ancora Advisors, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors.
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as KAR Auction Services Inc (NYSE:KAR) but similarly valued. These stocks are Veritex Holdings Inc (NASDAQ:VBTX), NMI Holdings Inc (NASDAQ:NMIH), B&G Foods, Inc. (NYSE:BGS), Holly Energy Partners, L.P. (NYSE:HEP), PRA Group, Inc. (NASDAQ:PRAA), PennyMac Mortgage Investment Trust (NYSE:PMT), and Monro Inc (NASDAQ:MNRO). This group of stocks’ market caps are similar to KAR’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| VBTX | 10 | 59199 | 1 |
| NMIH | 19 | 186090 | -2 |
| BGS | 13 | 17409 | 3 |
| HEP | 4 | 3357 | 1 |
| PRAA | 13 | 36971 | -2 |
| PMT | 10 | 7380 | -1 |
| MNRO | 13 | 29347 | 3 |
| Average | 11.7 | 48536 | 0.4 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 11.7 hedge funds with bullish positions and the average amount invested in these stocks was $49 million. That figure was $343 million in KAR’s case. NMI Holdings Inc (NASDAQ:NMIH) is the most popular stock in this table. On the other hand Holly Energy Partners, L.P. (NYSE:HEP) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks KAR Auction Services Inc (NYSE:KAR) is more popular among hedge funds. Our overall hedge fund sentiment score for KAR is 75.7. 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 31.1% in 2021 through December 9th and still beat the market by 5.1 percentage points. Unfortunately KAR wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on KAR were disappointed as the stock returned -2.6% since the end of the third quarter (through 12/9) 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 most of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.
