At Insider Monkey, we pore over the filings of nearly 867 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 September 30th. In this article, we will use that wealth of knowledge to determine whether or not IAA, Inc. (NYSE:IAA) makes for a good investment right now.
IAA, Inc. (NYSE:IAA) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 33 hedge funds’ portfolios at the end of September. Our calculations also showed that IAA isn’t among the 30 most popular stocks among hedge funds (click for Q3 rankings). The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as Alaska Air Group, Inc. (NYSE:ALK), PVH Corp (NYSE:PVH), and Pearson PLC (NYSE:PSO) to gather more data points.
Jeffrey Gates of Gates Capital
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, lithium prices have more than doubled over the past year, so 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. Keeping this in mind we’re going to review the key hedge fund action encompassing IAA, Inc. (NYSE:IAA).
Do Hedge Funds Think IAA Is A Good Stock To Buy Now?
At the end of September, a total of 33 of the hedge funds tracked by Insider Monkey were long this stock, a change of 0% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards IAA over the last 25 quarters. With hedge funds’ positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were adding to their holdings substantially (or already accumulated large positions).
More specifically, Melvin Capital Management was the largest shareholder of IAA, Inc. (NYSE:IAA), with a stake worth $267.4 million reported as of the end of September. Trailing Melvin Capital Management was Melvin Capital Management, which amassed a stake valued at $185.5 million. Gates Capital Management, Citadel Investment Group, and Candlestick 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 Gates Capital Management allocated the biggest weight to IAA, Inc. (NYSE:IAA), around 2.76% of its 13F portfolio. Intrepid Capital Management is also relatively very bullish on the stock, earmarking 1.77 percent of its 13F equity portfolio to IAA.
Seeing as IAA, Inc. (NYSE:IAA) has experienced a decline in interest from the aggregate hedge fund industry, it’s safe to say that there were a few funds that slashed their entire stakes heading into Q4. Interestingly, Frank Fu’s CaaS Capital dropped the biggest position of all the hedgies monitored by Insider Monkey, worth an estimated $23.4 million in stock, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was right behind this move, as the fund said goodbye to about $16.5 million worth. These moves are intriguing to say the least, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).
Let’s now review hedge fund activity in other stocks – not necessarily in the same industry as IAA, Inc. (NYSE:IAA) but similarly valued. These stocks are Alaska Air Group, Inc. (NYSE:ALK), PVH Corp (NYSE:PVH), Pearson PLC (NYSE:PSO), Chemed Corporation (NYSE:CHE), Legend Biotech Corporation (NASDAQ:LEGN), OneMain Holdings Inc (NYSE:OMF), and Plains All American Pipeline, L.P. (NYSE:PAA). All of these stocks’ market caps are similar to IAA’s market cap.
| Ticker | No of HFs with positions | Total Value of HF Positions (x1000) | Change in HF Position |
|---|---|---|---|
| ALK | 41 | 647583 | 3 |
| PVH | 38 | 2157407 | 10 |
| PSO | 8 | 15064 | 1 |
| CHE | 20 | 272040 | -10 |
| LEGN | 14 | 947002 | -5 |
| OMF | 41 | 1047061 | 0 |
| PAA | 7 | 51655 | 0 |
| Average | 24.1 | 733973 | -0.1 |
View table here if you experience formatting issues.
As you can see these stocks had an average of 24.1 hedge funds with bullish positions and the average amount invested in these stocks was $734 million. That figure was $715 million in IAA’s case. Alaska Air Group, Inc. (NYSE:ALK) is the most popular stock in this table. On the other hand Plains All American Pipeline, L.P. (NYSE:PAA) is the least popular one with only 7 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. Our overall hedge fund sentiment score for IAA is 66.3. 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. 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 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 28.6% in 2021 through November 30th and beat the market again by 5.6 percentage points. Unfortunately IAA wasn’t nearly as popular as these 5 stocks and hedge funds that were betting on IAA were disappointed as the stock returned -11.5% since the end of September (through 11/30) 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 many of these stocks already outperformed the market since 2019.
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Disclosure: None. This article was originally published at Insider Monkey.
