Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW. We predicted that a US recession is imminent and US stocks will go down by at least 20% in the next 3-6 months. We also told you to short the market ETFs and buy long-term bonds. Investors who agreed with us and replicated these trades are up double digits whereas the market is down double digits. Our article also called for a total international travel ban to prevent the spread of the coronavirus especially from Europe. We were one step ahead of the markets and the president (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. With this in mind let’s see whether Credit Acceptance Corp. (NASDAQ:CACC) makes for a good investment at the moment. We analyze the sentiment of a select group of the very best investors in the world, who spend immense amounts of time and resources studying companies. They may not always be right (no one is), but data shows that their consensus long positions have historically outperformed the market when we adjust for known risk factors.
Is Credit Acceptance Corp. (NASDAQ:CACC) the right pick for your portfolio? Hedge funds are becoming more confident. The number of long hedge fund bets moved up by 6 recently. Our calculations also showed that CACC isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings).
In the 21st century investor’s toolkit there are a lot of indicators stock market investors use to grade their stock investments. Some of the most useful indicators are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the top picks of the best fund managers can trounce the broader indices by a significant amount (see the details here).
Michael Platt of BlueCrest Capital Mgmt.
We leave no stone unturned when looking for the next great investment idea. For example we recently identified a stock that trades 25% below the net cash on its balance sheet. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind we’re going to view the key hedge fund action encompassing Credit Acceptance Corp. (NASDAQ:CACC).
Hedge fund activity in Credit Acceptance Corp. (NASDAQ:CACC)
At the end of the fourth quarter, a total of 31 of the hedge funds tracked by Insider Monkey were long this stock, a change of 24% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in CACC over the last 18 quarters. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
When looking at the institutional investors followed by Insider Monkey, Jonathan Bloomberg’s BloombergSen has the biggest position in Credit Acceptance Corp. (NASDAQ:CACC), worth close to $227.9 million, comprising 11.7% of its total 13F portfolio. Sitting at the No. 2 spot is Gobi Capital, managed by Bo Shan, which holds a $143.6 million position; 20.6% of its 13F portfolio is allocated to the company. Remaining hedge funds and institutional investors that hold long positions comprise William von Mueffling’s Cantillon Capital Management, Gavin M. Abrams’s Abrams Bison Investments and Cliff Asness’s AQR Capital Management. In terms of the portfolio weights assigned to each position Billings Capital Management allocated the biggest weight to Credit Acceptance Corp. (NASDAQ:CACC), around 23.27% of its 13F portfolio. Gobi Capital is also relatively very bullish on the stock, dishing out 20.63 percent of its 13F equity portfolio to CACC.
As industrywide interest jumped, some big names were breaking ground themselves. Schonfeld Strategic Advisors, managed by Ryan Tolkin (CIO), initiated the largest position in Credit Acceptance Corp. (NASDAQ:CACC). Schonfeld Strategic Advisors had $2.2 million invested in the company at the end of the quarter. Benjamin A. Smith’s Laurion Capital Management also initiated a $1.8 million position during the quarter. The following funds were also among the new CACC investors: Donald Sussman’s Paloma Partners, Alec Litowitz and Ross Laser’s Magnetar Capital, and Michael Platt and William Reeves’s BlueCrest Capital Mgmt..
Let’s go over hedge fund activity in other stocks similar to Credit Acceptance Corp. (NASDAQ:CACC). We will take a look at Lear Corporation (NYSE:LEA), Ares Management L.P. (NYSE:ARES), Aspen Technology, Inc. (NASDAQ:AZPN), and Juniper Networks, Inc. (NYSE:JNPR). This group of stocks’ market values match CACC’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| LEA | 29 | 1007450 | -10 |
| ARES | 18 | 235883 | 1 |
| AZPN | 37 | 1277921 | 6 |
| JNPR | 37 | 734511 | 5 |
| Average | 30.25 | 813941 | 0.5 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 30.25 hedge funds with bullish positions and the average amount invested in these stocks was $814 million. That figure was $948 million in CACC’s case. Aspen Technology, Inc. (NASDAQ:AZPN) is the most popular stock in this table. On the other hand Ares Management L.P. (NYSE:ARES) is the least popular one with only 18 bullish hedge fund positions. Credit Acceptance Corp. (NASDAQ:CACC) 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. Our calculations showed that top 20 most popular stocks among hedge funds returned 41.3% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks lost 22.3% in 2020 through March 16th but beat the market by 3.2 percentage points. Unfortunately CACC wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CACC were disappointed as the stock returned -26.3% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Disclosure: None. This article was originally published at Insider Monkey.
