Hedge Funds Are Dumping Group 1 Automotive, Inc. (GPI)

In this article we will analyze whether Group 1 Automotive, Inc. (NYSE:GPI) is a good investment right now by following the lead of some of the best investors in the world and piggybacking their ideas. There’s no better way to get these firms’ immense resources and analytical capabilities working for us than to follow their lead into their best ideas. While not all of these picks will be winners, our research shows that these picks historically outperformed the market by double digits annually.

Group 1 Automotive, Inc. (NYSE:GPI) shareholders have witnessed a decrease in activity from the world’s largest hedge funds lately. Group 1 Automotive, Inc. (NYSE:GPI) was in 21 hedge funds’ portfolios at the end of June. The all time high for this statistic is 26. Our calculations also showed that GPI 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.

Paul Marshall of Marshall Wace

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium 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. Now we’re going to analyze the recent hedge fund action encompassing Group 1 Automotive, Inc. (NYSE:GPI).

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

At the end of June, a total of 21 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -19% from one quarter earlier. By comparison, 21 hedge funds held shares or bullish call options in GPI a year ago. With the smart money’s capital changing hands, there exists a select group of key hedge fund managers who were adding to their stakes meaningfully (or already accumulated large positions).

The largest stake in Group 1 Automotive, Inc. (NYSE:GPI) was held by Eminence Capital, which reported holding $164.9 million worth of stock at the end of June. It was followed by Lakewood Capital Management with a $50.9 million position. Other investors bullish on the company included Shellback Capital, Arrowstreet Capital, and Two Sigma Advisors. In terms of the portfolio weights assigned to each position Cobalt Capital Management allocated the biggest weight to Group 1 Automotive, Inc. (NYSE:GPI), around 2.48% of its 13F portfolio. Lakewood Capital Management is also relatively very bullish on the stock, setting aside 2.1 percent of its 13F equity portfolio to GPI.

Seeing as Group 1 Automotive, Inc. (NYSE:GPI) has experienced falling interest from the aggregate hedge fund industry, we can see that there exists a select few fund managers who were dropping their full holdings heading into Q3. Intriguingly, Matthew Hulsizer’s PEAK6 Capital Management dumped the largest position of all the hedgies monitored by Insider Monkey, comprising about $7.5 million in stock. Ken Heebner’s fund, Capital Growth Management, also dumped its stock, about $4.7 million worth. These bearish behaviors are interesting, as total hedge fund interest fell by 5 funds heading into Q3.

Let’s check out hedge fund activity in other stocks similar to Group 1 Automotive, Inc. (NYSE:GPI). We will take a look at Main Street Capital Corporation (NYSE:MAIN), Embraer SA (NYSE:ERJ), CVB Financial Corp. (NASDAQ:CVBF), PriceSmart, Inc. (NASDAQ:PSMT), Kennedy-Wilson Holdings Inc (NYSE:KW), Opko Health Inc. (NYSE:OPK), and Transocean Ltd (NYSE:RIG). This group of stocks’ market valuations are closest to GPI’s market valuation.

View table here if you experience formatting issues.

As you can see these stocks had an average of 15.1 hedge funds with bullish positions and the average amount invested in these stocks was $146 million. That figure was $304 million in GPI’s case. Transocean Ltd (NYSE:RIG) is the most popular stock in this table. On the other hand Main Street Capital Corporation (NYSE:MAIN) is the least popular one with only 8 bullish hedge fund positions. Group 1 Automotive, Inc. (NYSE:GPI) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for GPI is 58.4. 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 24% in 2021 through October 22nd and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on GPI as the stock returned 30.1% since the end of Q2 (through 10/22) 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.

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