“Market volatility has picked up again over the past few weeks. Headlines highlight risks regarding interest rates, the Fed, China, house prices, auto sales, trade wars, and more. Uncertainty abounds. But doesn’t it always? I have no view on whether the recent volatility will continue for a while, or whether the market will be back at all-time highs before we know it. I remain focused on preserving and growing our capital, and continue to believe that the best way to do so is via a value-driven, concentrated, patient approach. I shun consensus holdings, rich valuations, and market fads, in favor of solid, yet frequently off-the-beaten-path, businesses run by excellent, aligned management teams, purchased at deep discounts to intrinsic value,” are the words of Maran Capital’s Dan Roller. His stock picks have been beating the S&P 500 Index handily. We pay attention to what hedge funds are doing in a particular stock before considering a potential investment because it works for us. So let’s take a glance at the smart money sentiment towards Lithia Motors Inc (NYSE:LAD) and see how it was affected.
Lithia Motors Inc (NYSE:LAD) investors should pay attention to an increase in activity from the world’s largest hedge funds in recent months. Our calculations also showed that lad isn’t among the 30 most popular stocks among hedge funds.
So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 18 percentage points since May 2014 through December 3, 2018 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren’t comfortable with shorting stocks, you should at least avoid initiating long positions in our short portfolio.
We’re going to check out the new hedge fund action regarding Lithia Motors Inc (NYSE:LAD).
How are hedge funds trading Lithia Motors Inc (NYSE:LAD)?
Heading into the fourth quarter of 2018, a total of 19 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 27% from the second quarter of 2018. By comparison, 15 hedge funds held shares or bullish call options in LAD heading into this year. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Abrams Capital Management was the largest shareholder of Lithia Motors Inc (NYSE:LAD), with a stake worth $163.3 million reported as of the end of September. Trailing Abrams Capital Management was Park West Asset Management, which amassed a stake valued at $123 million. Cardinal Capital, Lakewood Capital Management, and Tyvor Capital were also very fond of the stock, giving the stock large weights in their portfolios.
With a general bullishness amongst the heavyweights, key money managers were leading the bulls’ herd. Citadel Investment Group, managed by Ken Griffin, created the biggest position in Lithia Motors Inc (NYSE:LAD). Citadel Investment Group had $7.2 million invested in the company at the end of the quarter. Joe DiMenna’s ZWEIG DIMENNA PARTNERS also made a $4.9 million investment in the stock during the quarter. The following funds were also among the new LAD investors: Alexander Mitchell’s Scopus Asset Management, Joel Greenblatt’s Gotham Asset Management, and Matthew Hulsizer’s PEAK6 Capital Management.
Let’s also examine hedge fund activity in other stocks – not necessarily in the same industry as Lithia Motors Inc (NYSE:LAD) but similarly valued. These stocks are Pinnacle Entertainment, Inc (NASDAQ:PNK), The Ensign Group, Inc. (NASDAQ:ENSG), BP Midstream Partners LP (NYSE:BPMP), and Cronos Group Inc. (NASDAQ:CRON). All of these stocks’ market caps are closest to LAD’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| PNK | 21 | 296270 | 1 |
| ENSG | 13 | 39020 | 1 |
| BPMP | 4 | 94041 | 0 |
| CRON | 12 | 19560 | 6 |
| Average | 12.5 | 112223 | 2 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.5 hedge funds with bullish positions and the average amount invested in these stocks was $112 million. That figure was $436 million in LAD’s case. Pinnacle Entertainment, Inc (NYSE:PNK) is the most popular stock in this table. On the other hand BP Midstream Partners LP (NYSE:BPMP) is the least popular one with only 4 bullish hedge fund positions. Lithia Motors Inc (NYSE:LAD) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. In this regard PNK might be a better candidate to consider a long position.
Disclosure: None. This article was originally published at Insider Monkey.
