We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (10 coronavirus predictions).
In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Insider Monkey has processed numerous 13F filings of hedge funds and successful value investors to create an extensive database of hedge fund holdings. The 13F filings show the hedge funds’ and successful investors’ positions as of the end of the fourth quarter. You can find articles about an individual hedge fund’s trades on numerous financial news websites. However, in this article we will take a look at their collective moves over the last 4 years and analyze what the smart money thinks of IAA, Inc. (NYSE:IAA) based on that data.
IAA, Inc. (NYSE:IAA) has seen an increase in activity from the world’s largest hedge funds recently. IAA was in 37 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 32 hedge funds in our database with IAA positions at the end of the previous quarter. Our calculations also showed that IAA 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).
At the moment there are numerous indicators shareholders can use to appraise publicly traded companies. A duo of the most under-the-radar indicators are hedge fund and insider trading indicators. Our researchers have shown that, historically, those who follow the best picks of the elite money managers can outclass the broader indices by a solid margin (see the details here).
Dan Loeb of Third Point
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 peek at the latest hedge fund action surrounding IAA, Inc. (NYSE:IAA).
Hedge fund activity in IAA, Inc. (NYSE:IAA)
At Q4’s end, a total of 37 of the hedge funds tracked by Insider Monkey were long this stock, a change of 16% from the previous quarter. The graph below displays the number of hedge funds with bullish position in IAA over the last 18 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Third Point was the largest shareholder of IAA, Inc. (NYSE:IAA), with a stake worth $305.9 million reported as of the end of September. Trailing Third Point was D E Shaw, which amassed a stake valued at $120.5 million. Gates Capital Management, Cardinal Capital, and Melvin Capital 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 SkyTop Capital Management allocated the biggest weight to IAA, Inc. (NYSE:IAA), around 6.8% of its 13F portfolio. MIK Capital is also relatively very bullish on the stock, setting aside 5.73 percent of its 13F equity portfolio to IAA.
As industrywide interest jumped, key hedge funds have jumped into IAA, Inc. (NYSE:IAA) headfirst. Third Point, managed by Dan Loeb, assembled the biggest position in IAA, Inc. (NYSE:IAA). Third Point had $305.9 million invested in the company at the end of the quarter. Jack Woodruff’s Candlestick Capital Management also initiated a $49.4 million position during the quarter. The other funds with new positions in the stock are Seth Wunder’s Black-and-White Capital, Kamyar Khajavi’s MIK Capital, and Brad Stephens’s Six Columns Capital.
Let’s also examine hedge fund activity in other stocks similar to IAA, Inc. (NYSE:IAA). These stocks are Berry Global Group Inc (NYSE:BERY), United Microelectronics Corp (NYSE:UMC), Healthcare Trust Of America Inc (NYSE:HTA), and Dunkin Brands Group Inc (NASDAQ:DNKN). This group of stocks’ market valuations match IAA’s market valuation.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| BERY | 47 | 1623514 | 4 |
| UMC | 14 | 124868 | 1 |
| HTA | 11 | 186628 | -9 |
| DNKN | 31 | 272021 | 3 |
| Average | 25.75 | 551758 | -0.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 25.75 hedge funds with bullish positions and the average amount invested in these stocks was $552 million. That figure was $1058 million in IAA’s case. Berry Global Group Inc (NYSE:BERY) is the most popular stock in this table. On the other hand Healthcare Trust Of America Inc (NYSE:HTA) is the least popular one with only 11 bullish hedge fund positions. IAA, Inc. (NYSE:IAA) 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 IAA wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on IAA were disappointed as the stock returned -37.5% 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.
