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 (see why hell is coming).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. At Insider Monkey, we pore over the filings of nearly 835 top investment firms every quarter, a process we have now completed for the latest reporting period. The data we’ve gathered as a result gives us access to a wealth of collective knowledge based on these firms’ portfolio holdings as of December 31. In this article, we will use that wealth of knowledge to determine whether or not Penske Automotive Group, Inc. (NYSE:PAG) makes for a good investment right now.
Is Penske Automotive Group, Inc. (NYSE:PAG) a buy, sell, or hold? Hedge funds are betting on the stock. The number of long hedge fund positions improved by 12 recently. Our calculations also showed that PAG 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 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 72.9% since March 2017 and outperformed the S&P 500 ETFs by more than 41 percentage points. Our short strategy outperformed the S&P 500 short ETFs by 20 percentage points annually (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
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. Keeping this in mind we’re going to take a look at the key hedge fund action regarding Penske Automotive Group, Inc. (NYSE:PAG).
What have hedge funds been doing with Penske Automotive Group, Inc. (NYSE:PAG)?
Heading into the first quarter of 2020, a total of 29 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 71% from one quarter earlier. The graph below displays the number of hedge funds with bullish position in PAG over the last 18 quarters. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, GAMCO Investors held the most valuable stake in Penske Automotive Group, Inc. (NYSE:PAG), which was worth $25.5 million at the end of the third quarter. On the second spot was AQR Capital Management which amassed $13.7 million worth of shares. Arrowstreet Capital, Millennium Management, and Citadel Investment Group 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 Moon Capital allocated the biggest weight to Penske Automotive Group, Inc. (NYSE:PAG), around 1.29% of its 13F portfolio. Algert Coldiron Investors is also relatively very bullish on the stock, setting aside 0.52 percent of its 13F equity portfolio to PAG.
Consequently, key hedge funds were breaking ground themselves. Moore Global Investments, managed by Louis Bacon, created the most valuable position in Penske Automotive Group, Inc. (NYSE:PAG). Moore Global Investments had $3.3 million invested in the company at the end of the quarter. Peter Algert and Kevin Coldiron’s Algert Coldiron Investors also initiated a $1.8 million position during the quarter. The following funds were also among the new PAG investors: Dmitry Balyasny’s Balyasny Asset Management, John W. Moon’s Moon Capital, and Minhua Zhang’s Weld Capital Management.
Let’s also examine hedge fund activity in other stocks similar to Penske Automotive Group, Inc. (NYSE:PAG). We will take a look at RH (NYSE:RH), CVR Energy, Inc. (NYSE:CVI), Intercept Pharmaceuticals Inc (NASDAQ:ICPT), and Wintrust Financial Corporation (NASDAQ:WTFC). All of these stocks’ market caps are closest to PAG’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| RH | 38 | 1195655 | 3 |
| CVI | 31 | 3034481 | 3 |
| ICPT | 27 | 485264 | 4 |
| WTFC | 21 | 274629 | 1 |
| Average | 29.25 | 1247507 | 2.75 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 29.25 hedge funds with bullish positions and the average amount invested in these stocks was $1248 million. That figure was $100 million in PAG’s case. RH (NYSE:RH) is the most popular stock in this table. On the other hand Wintrust Financial Corporation (NASDAQ:WTFC) is the least popular one with only 21 bullish hedge fund positions. Penske Automotive Group, Inc. (NYSE:PAG) is not the least popular stock in this group but hedge fund interest is still below average. This is a slightly negative signal and 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 17.4% in 2020 through March 25th but beat the market by 5.5 percentage points. Unfortunately PAG wasn’t nearly as popular as these 20 stocks (hedge fund sentiment was quite bearish); PAG investors were disappointed as the stock returned -42.9% 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 most of these stocks already outperformed the market in Q1.
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.
