Hedge Funds Are Selling O’Reilly Automotive Inc (ORLY)

In this article we will analyze whether O’Reilly Automotive Inc (NASDAQ:ORLY) 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.

O’Reilly Automotive Inc (NASDAQ:ORLY) was in 44 hedge funds’ portfolios at the end of June. The all time high for this statistic is 64. ORLY has experienced a decrease in activity from the world’s largest hedge funds recently. There were 45 hedge funds in our database with ORLY holdings at the end of March. Our calculations also showed that ORLY isn’t among the 30 most popular stocks among hedge funds (click for Q2 rankings).

In the financial world there are a large number of tools investors have at their disposal to grade stocks. A pair of the most under-the-radar tools are hedge fund and insider trading indicators. We have shown that, historically, those who follow the top picks of the best fund managers can outperform the broader indices by a solid amount. Insider Monkey’s monthly stock picks returned 185.4% since March 2017 and outperformed the S&P 500 ETFs by more than 79 percentage points (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.

David Siegel of Two Sigma Advisors

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. Keeping this in mind we’re going to take a look at the recent hedge fund action surrounding O’Reilly Automotive Inc (NASDAQ:ORLY).

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

At the end of June, a total of 44 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -2% from the previous quarter. Below, you can check out the change in hedge fund sentiment towards ORLY over the last 24 quarters. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).

More specifically, Akre Capital Management was the largest shareholder of O’Reilly Automotive Inc (NASDAQ:ORLY), with a stake worth $895.5 million reported as of the end of June. Trailing Akre Capital Management was Citadel Investment Group, which amassed a stake valued at $219.4 million. Two Sigma Advisors, SRS Investment Management, and Renaissance Technologies 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 Masterton Capital Management allocated the biggest weight to O’Reilly Automotive Inc (NASDAQ:ORLY), around 5.53% of its 13F portfolio. Akre Capital Management is also relatively very bullish on the stock, setting aside 5.51 percent of its 13F equity portfolio to ORLY.

Due to the fact that O’Reilly Automotive Inc (NASDAQ:ORLY) has experienced bearish sentiment from the aggregate hedge fund industry, logic holds that there was a specific group of funds who were dropping their full holdings in the second quarter. Intriguingly, Andreas Halvorsen’s Viking Global dropped the largest investment of the 750 funds tracked by Insider Monkey, valued at close to $541.1 million in stock. Ric Dillon’s fund, Diamond Hill Capital, also cut its stock, about $140 million worth. These moves are intriguing to say the least, as total hedge fund interest dropped by 1 funds in the second quarter.

Let’s check out hedge fund activity in other stocks similar to O’Reilly Automotive Inc (NASDAQ:ORLY). We will take a look at Marathon Petroleum Corp (NYSE:MPC), The Allstate Corporation (NYSE:ALL), Fortinet Inc (NASDAQ:FTNT), Paychex, Inc. (NASDAQ:PAYX), Rocket Companies, Inc. (NYSE:RKT), Manulife Financial Corporation (NYSE:MFC), and Cadence Design Systems Inc (NASDAQ:CDNS). This group of stocks’ market values are similar to ORLY’s market value.

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As you can see these stocks had an average of 29.4 hedge funds with bullish positions and the average amount invested in these stocks was $1054 million. That figure was $2366 million in ORLY’s case. Marathon Petroleum Corp (NYSE:MPC) is the most popular stock in this table. On the other hand Rocket Companies, Inc. (NYSE:RKT) is the least popular one with only 13 bullish hedge fund positions. O’Reilly Automotive Inc (NASDAQ:ORLY) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ORLY is 68.9. 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 22.9% in 2021 through October 1st and still beat the market by 5.6 percentage points. Hedge funds were also right about betting on ORLY as the stock returned 6.8% since the end of Q2 (through 10/1) 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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