Hedge Funds Are Piling Into Sonic Automotive Inc (SAH)

Although the masses and most of the financial media blame hedge funds for their exorbitant fee structure and disappointing performance, these investors have proved to have great stock picking abilities over the years (that’s why their assets under management continue to swell). We believe hedge fund sentiment should serve as a crucial tool of an individual investor’s stock selection process, as it may offer great insights of how the brightest minds of the finance industry feel about specific stocks. After all, these people have access to smartest analysts and expensive data/information sources that individual investors can’t match. So should one consider investing in Sonic Automotive Inc (NYSE:SAH)? The smart money sentiment can provide an answer to this question.

Is Sonic Automotive Inc (NYSE:SAH) the right pick for your portfolio? Hedge funds were in an optimistic mood. The number of long hedge fund bets improved by 3 in recent months. Sonic Automotive Inc (NYSE:SAH) was in 20 hedge funds’ portfolios at the end of June. The all time high for this statistic is 20. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that SAH isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 79 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Ken Heebner of Capital Growth Management

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, plant based food market is expected to explode 100-fold by 2050, so we are checking out this under-the-radar stock. We go through lists like the 10 best growth stocks to buy 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 we’re going to check out the key hedge fund action surrounding Sonic Automotive Inc (NYSE:SAH).

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

At the end of June, a total of 20 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 18% from the first quarter of 2020. The graph below displays the number of hedge funds with bullish position in SAH over the last 24 quarters. With hedgies’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were adding to their holdings meaningfully (or already accumulated large positions).

Among these funds, Teewinot Capital Advisers held the most valuable stake in Sonic Automotive Inc (NYSE:SAH), which was worth $17.3 million at the end of the second quarter. On the second spot was Arrowstreet Capital which amassed $14.8 million worth of shares. Millennium Management, SG Capital Management, and D E Shaw were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Teewinot Capital Advisers allocated the biggest weight to Sonic Automotive Inc (NYSE:SAH), around 4.02% of its 13F portfolio. SG Capital Management is also relatively very bullish on the stock, designating 2.62 percent of its 13F equity portfolio to SAH.

Now, key hedge funds were leading the bulls’ herd. SG Capital Management, managed by Ken Grossman and Glen Schneider, created the most valuable position in Sonic Automotive Inc (NYSE:SAH). SG Capital Management had $9.5 million invested in the company at the end of the quarter. Marc Majzner’s Clearline Capital also initiated a $3.9 million position during the quarter. The following funds were also among the new SAH investors: James Morrow’s Callodine Capital Management, Dmitry Balyasny’s Balyasny Asset Management, and Ken Heebner’s Capital Growth Management.

Let’s also examine hedge fund activity in other stocks similar to Sonic Automotive Inc (NYSE:SAH). We will take a look at Kite Realty Group Trust (NYSE:KRG), BrightSphere Investment Group Inc (NYSE:BSIG), CSW Industrials, Inc. (NASDAQ:CSWI), Triumph Bancorp Inc (NASDAQ:TBK), Enerplus Corp (NYSE:ERF), View, Inc. (NASDAQ:VIEW), and YPF Sociedad Anonima (NYSE:YPF). This group of stocks’ market caps are similar to SAH’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 16.1 hedge funds with bullish positions and the average amount invested in these stocks was $195 million. That figure was $97 million in SAH’s case. BrightSphere Investment Group Inc (NYSE:BSIG) is the most popular stock in this table. On the other hand Kite Realty Group Trust (NYSE:KRG) is the least popular one with only 11 bullish hedge fund positions. Sonic Automotive Inc (NYSE:SAH) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for SAH is 63. 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 SAH as the stock returned 16.6% 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.