Hedge Funds Have Never Been This Bullish On Lithia Motors (LAD)

The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 873 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their June 30th holdings, data that is available nowhere else. Should you consider Lithia Motors Inc (NYSE:LAD) for your portfolio? We’ll look to this invaluable collective wisdom for the answer.

Is Lithia Motors Inc (NYSE:LAD) a healthy stock for your portfolio? The best stock pickers were getting more bullish. The number of long hedge fund positions advanced by 23 recently. Lithia Motors Inc (NYSE:LAD) was in 63 hedge funds’ portfolios at the end of June. The all time high for this statistic is 49. This means the bullish number of hedge fund positions in this stock currently sits at its all time high. Our calculations also showed that LAD 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.

David Abrams of Abrams Capital Management

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 analyze the key hedge fund action encompassing Lithia Motors Inc (NYSE:LAD).

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

At Q2’s end, a total of 63 of the hedge funds tracked by Insider Monkey were long this stock, a change of 58% from the first quarter of 2020. By comparison, 31 hedge funds held shares or bullish call options in LAD a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of key hedge fund managers who were upping their stakes substantially (or already accumulated large positions).

Among these funds, Abrams Capital Management held the most valuable stake in Lithia Motors Inc (NYSE:LAD), which was worth $807.9 million at the end of the second quarter. On the second spot was Viking Global which amassed $277.5 million worth of shares. Southpoint Capital Advisors, Lyrical Asset Management, and Park West Asset Management 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 Abrams Capital Management allocated the biggest weight to Lithia Motors Inc (NYSE:LAD), around 17.96% of its 13F portfolio. Tensile Capital is also relatively very bullish on the stock, earmarking 12.83 percent of its 13F equity portfolio to LAD.

As aggregate interest increased, specific money managers have jumped into Lithia Motors Inc (NYSE:LAD) headfirst. D E Shaw, managed by D. E. Shaw, created the largest position in Lithia Motors Inc (NYSE:LAD). D E Shaw had $55.3 million invested in the company at the end of the quarter. Leon Cooperman’s Omega Advisors also initiated a $47.3 million position during the quarter. The other funds with new positions in the stock are Jeffrey Jacobowitz’s Simcoe Capital Management, Ryan Tolkin (CIO)’s Schonfeld Strategic Advisors, and Jeffrey Altman’s Owl Creek Asset Management.

Let’s also examine hedge fund activity in other stocks similar to Lithia Motors Inc (NYSE:LAD). We will take a look at Henry Schein, Inc. (NASDAQ:HSIC), GFL Environmental Inc. (NYSE:GFL), Paylocity Holding Corp (NASDAQ:PCTY), Ares Management Corp (NYSE:ARES), Kirkland Lake Gold Ltd. (NYSE:KL), Opendoor Technologies Inc. (NASDAQ:OPEN), and Owens Corning (NYSE:OC). All of these stocks’ market caps resemble LAD’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 27.4 hedge funds with bullish positions and the average amount invested in these stocks was $690 million. That figure was $2924 million in LAD’s case. Henry Schein, Inc. (NASDAQ:HSIC) is the most popular stock in this table. On the other hand Paylocity Holding Corp (NASDAQ:PCTY) is the least popular one with only 19 bullish hedge fund positions. Compared to these stocks Lithia Motors Inc (NYSE:LAD) is more popular among hedge funds. Our overall hedge fund sentiment score for LAD is 90. 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 25.7% in 2021 through September 27th and still beat the market by 6.2 percentage points. Unfortunately LAD wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on LAD were disappointed as the stock returned 2.5% since the end of the second quarter (through 9/27) 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 most of these stocks already outperformed the market since 2019.

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