Hedge fund managers like David Einhorn, Bill Ackman, or Carl Icahn became billionaires through reaping large profits for their investors, which is why piggybacking their stock picks may provide us with significant returns as well. Many hedge funds, like Paul Singer’s Elliott Management, are pretty secretive, but we can still get some insights by analyzing their quarterly 13F filings. One of the most fertile grounds for large abnormal returns is hedge funds’ most popular small-cap picks, which are not so widely followed and often trade at a discount to their intrinsic value. In this article we will check out hedge fund activity in another small-cap stock: Cars.com Inc. (NYSE:CARS).
Is Cars.com Inc. (NYSE:CARS) a cheap investment right now? Prominent investors are getting more optimistic. The number of long hedge fund positions rose by 9 recently. Our calculations also showed that CARS isn’t among the 30 most popular stocks among hedge funds.
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 flagship best performing hedge funds strategy returned 25.8% year to date (through May 30th) and outperformed the market even though it draws its stock picks among small-cap stocks. This strategy also outperformed the market by 40 percentage points since its inception (see the details here). That’s why we believe hedge fund sentiment is a useful indicator that investors should pay attention to.
Let’s analyze the latest hedge fund action surrounding Cars.com Inc. (NYSE:CARS).
How are hedge funds trading Cars.com Inc. (NYSE:CARS)?
At Q1’s end, a total of 27 of the hedge funds tracked by Insider Monkey were long this stock, a change of 50% from the fourth quarter of 2018. On the other hand, there were a total of 24 hedge funds with a bullish position in CARS a year ago. So, let’s check out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
Among these funds, Starboard Value LP held the most valuable stake in Cars.com Inc. (NYSE:CARS), which was worth $145.5 million at the end of the first quarter. On the second spot was Sessa Capital which amassed $45.7 million worth of shares. Moreover, Kavi Asset Management, Steadfast Capital Management, and Citadel Investment Group were also bullish on Cars.com Inc. (NYSE:CARS), allocating a large percentage of their portfolios to this stock.
As one would reasonably expect, specific money managers were breaking ground themselves. Alyeska Investment Group, managed by Anand Parekh, assembled the biggest position in Cars.com Inc. (NYSE:CARS). Alyeska Investment Group had $14.8 million invested in the company at the end of the quarter. John Petry’s Sessa Capital also made a $11.4 million investment in the stock during the quarter. The following funds were also among the new CARS investors: Frederick DiSanto’s Ancora Advisors, Joseph Samuels’s Islet Management, and Himanshu Gulati’s Antara Capital.
Let’s check out hedge fund activity in other stocks similar to Cars.com Inc. (NYSE:CARS). These stocks are Orchard Therapeutics plc (NASDAQ:ORTX), SSR Mining Inc. (NASDAQ:SSRM), The Children’s Place Inc. (NASDAQ:PLCE), and Sirius International Insurance Group, Ltd. (NASDAQ:SG). This group of stocks’ market caps resemble CARS’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ORTX | 13 | 314817 | 1 |
| SSRM | 13 | 106970 | 1 |
| PLCE | 22 | 254916 | 3 |
| SG | 1 | 3942 | 0 |
| Average | 12.25 | 170161 | 1.25 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 12.25 hedge funds with bullish positions and the average amount invested in these stocks was $170 million. That figure was $375 million in CARS’s case. The Children’s Place Inc. (NASDAQ:PLCE) is the most popular stock in this table. On the other hand Sirius International Insurance Group, Ltd. (NASDAQ:SG) is the least popular one with only 1 bullish hedge fund positions. Compared to these stocks Cars.com Inc. (NYSE:CARS) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 1.9% in Q2 through May 30th and outperformed the S&P 500 ETF (SPY) by more than 3 percentage points. Unfortunately CARS wasn’t nearly as popular as these 20 stocks and hedge funds that were betting on CARS were disappointed as the stock returned -7.6% during the same 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 13 of these stocks already outperformed the market in Q2.
Disclosure: None. This article was originally published at Insider Monkey.
