Hedge Funds Are Dumping CarMax Inc (KMX)

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of CarMax Inc (NYSE:KMX).

CarMax Inc (NYSE:KMX) shareholders have witnessed a decrease in support from the world’s most elite money managers recently. CarMax Inc (NYSE:KMX) was in 39 hedge funds’ portfolios at the end of the second quarter of 2021. The all time high for this statistic is 54. There were 46 hedge funds in our database with KMX positions at the end of the first quarter. Our calculations also showed that KMX isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

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 S&P 500 ETFs by more than 79 percentage points since March 2017 (see the details here). We have been able to outperform the passive index funds by tracking the moves of corporate insiders and hedge funds, and we believe small investors can benefit a lot from reading hedge fund investor letters and 13F filings.

Donald Sussman of Paloma Partners

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, we like undervalued, EBITDA-positive growth stocks, so we are checking out stock pitches like this emerging biotech stock. 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. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let’s review the new hedge fund action surrounding CarMax Inc (NYSE:KMX).

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

Heading into the third quarter of 2021, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of -15% from one quarter earlier. By comparison, 46 hedge funds held shares or bullish call options in KMX a year ago. With the smart money’s capital changing hands, there exists a few notable hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

The largest stake in CarMax Inc (NYSE:KMX) was held by Akre Capital Management, which reported holding $918.7 million worth of stock at the end of June. It was followed by Giverny Capital with a $143.5 million position. Other investors bullish on the company included Wallace R. Weitz & Co., Silver Heights Capital Management, and Makaira Partners. In terms of the portfolio weights assigned to each position Silver Heights Capital Management allocated the biggest weight to CarMax Inc (NYSE:KMX), around 20.11% of its 13F portfolio. Lansing Management is also relatively very bullish on the stock, earmarking 12.34 percent of its 13F equity portfolio to KMX.

Since CarMax Inc (NYSE:KMX) has witnessed a decline in interest from hedge fund managers, it’s easy to see that there was a specific group of fund managers that elected to cut their entire stakes last quarter. It’s worth mentioning that Dan Loeb’s Third Point dumped the biggest stake of all the hedgies followed by Insider Monkey, totaling close to $145.9 million in stock, and Alexander Mitchell’s Scopus Asset Management was right behind this move, as the fund dropped about $79.6 million worth. These transactions are intriguing to say the least, as total hedge fund interest fell by 7 funds last quarter.

Let’s go over hedge fund activity in other stocks – not necessarily in the same industry as CarMax Inc (NYSE:KMX) but similarly valued. These stocks are TransUnion (NYSE:TRU), DraftKings Inc. (NASDAQ:DKNG), MGM Resorts International (NYSE:MGM), Church & Dwight Co., Inc. (NYSE:CHD), Gartner Inc (NYSE:IT), Fortis Inc. (NYSE:FTS), and StoneCo Ltd. (NASDAQ:STNE). This group of stocks’ market valuations match KMX’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 35.3 hedge funds with bullish positions and the average amount invested in these stocks was $1818 million. That figure was $1620 million in KMX’s case. MGM Resorts International (NYSE:MGM) is the most popular stock in this table. On the other hand Fortis Inc. (NYSE:FTS) is the least popular one with only 9 bullish hedge fund positions. CarMax Inc (NYSE:KMX) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for KMX is 49.7. 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. 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 21.8% in 2021 through October 11th and beat the market again by 4.4 percentage points. Unfortunately KMX wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on KMX were disappointed as the stock returned 0.1% since the end of June (through 10/11) 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 many of these stocks already outperformed the market since 2019.

Suggested Articles:

• 10 Best High Yield Dividend Stocks Under $50
• 13 Countries with Largest Gay Populations
• Billionaire Nelson Peltz’s Favorite Stocks

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