Coronavirus is probably the #1 concern in investors’ minds right now. It should be. On February 27th we published this article and predicted that 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. In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Hedge Funds and other institutional investors have just completed filing their 13Fs with the Securities and Exchange Commission, revealing their equity portfolios as of the end of June. At Insider Monkey, we follow nearly 835 active hedge funds and notable investors and by analyzing their 13F filings, we can determine the stocks that they are collectively bullish on. One of their picks is LKQ Corporation (NASDAQ:LKQ), so let’s take a closer look at the sentiment that surrounds it in the current quarter.
Is LKQ Corporation (NASDAQ:LKQ) going to take off soon? Money managers are in a bullish mood. The number of bullish hedge fund bets increased by 9 lately. Our calculations also showed that LKQ isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video below for Q3 rankings). LKQ was in 52 hedge funds’ portfolios at the end of December. There were 43 hedge funds in our database with LKQ positions at the end of the previous quarter.
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 41 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 35.3% through March 3rd. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.
Scott Ferguson of Sachem Head Capital
We leave no stone unturned when looking for the next great investment idea. For example Europe is set to become the world’s largest cannabis market, so we check out this European marijuana stock pitch. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences, and and go through short-term trade recommendations like this one. We even check out the recommendations of services with hard to believe track records. In January, we recommended a long position in one of the most shorted stocks in the market, and that stock returned more than 50% despite the large losses in the market since our recommendation. Keeping this in mind we’re going to view the new hedge fund action surrounding LKQ Corporation (NASDAQ:LKQ).
How are hedge funds trading LKQ Corporation (NASDAQ:LKQ)?
At Q4’s end, a total of 52 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 21% from one quarter earlier. By comparison, 40 hedge funds held shares or bullish call options in LKQ a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, ValueAct Capital was the largest shareholder of LKQ Corporation (NASDAQ:LKQ), with a stake worth $590.2 million reported as of the end of September. Trailing ValueAct Capital was Southpoint Capital Advisors, which amassed a stake valued at $185.6 million. International Value Advisers, Marshall Wace LLP, and Atalan Capital 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 Clearfield Capital allocated the biggest weight to LKQ Corporation (NASDAQ:LKQ), around 13.07% of its 13F portfolio. 12th Street Asset Management is also relatively very bullish on the stock, dishing out 9 percent of its 13F equity portfolio to LKQ.
As industrywide interest jumped, key hedge funds were leading the bulls’ herd. Sachem Head Capital, managed by Scott Ferguson, assembled the most outsized position in LKQ Corporation (NASDAQ:LKQ). Sachem Head Capital had $43.7 million invested in the company at the end of the quarter. Richard SchimeláandáLawrence Sapanski’s Cinctive Capital Management also initiated a $6.5 million position during the quarter. The other funds with new positions in the stock are David Harding’s Winton Capital Management, Bruce Kovner’s Caxton Associates LP, and Lee Ainslie’s Maverick Capital.
Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as LKQ Corporation (NASDAQ:LKQ) but similarly valued. These stocks are Avery Dennison Corporation (NYSE:AVY), Medical Properties Trust, Inc. (NYSE:MPW), Marathon Oil Corporation (NYSE:MRO), and Rollins, Inc. (NYSE:ROL). This group of stocks’ market values are similar to LKQ’s market value.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| AVY | 22 | 105570 | -3 |
| MPW | 14 | 186041 | 2 |
| MRO | 30 | 448735 | -7 |
| ROL | 34 | 363525 | 5 |
| Average | 25 | 275968 | -0.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25 hedge funds with bullish positions and the average amount invested in these stocks was $276 million. That figure was $1559 million in LKQ’s case. Rollins, Inc. (NYSE:ROL) is the most popular stock in this table. On the other hand Medical Properties Trust, Inc. (NYSE:MPW) is the least popular one with only 14 bullish hedge fund positions. Compared to these stocks LKQ Corporation (NASDAQ:LKQ) is more popular among hedge funds. 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 12.9% in 2020 through March 9th and still beat the market by 1.9 percentage points. Unfortunately LKQ wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on LKQ were disappointed as the stock returned -27.5% during the first two months of 2020 (through March 9th) 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 most of these stocks already outperformed the market in Q1.
Disclosure: None. This article was originally published at Insider Monkey.
