Is AutoZone, Inc. (AZO) A Good Stock To Buy?

Hedge funds are not perfect. They have their bad picks just like everyone else. Micron, a stock hedge funds have loved, lost 50% during the last 12 months ending in October 30. Although hedge funds are not perfect, their consensus picks do deliver solid returns, however. Our data show the top 30 S&P 500 stocks among hedge funds at the end of September 2014 yielded an average return of 9.5% in the same time period, vs. a gain of 5.2% for the S&P 500 Index. Because hedge funds have a lot of resources and their consensus picks do well, we pay attention to what they think. In this article, we analyze what the elite funds think of AutoZone, Inc. (NYSE:AZO).

AutoZone, Inc. (NYSE:AZO) was in 39 hedge funds’ portfolios at the end of the third quarter of 2015. AutoZone, Inc. (NYSE:AZO) has experienced an increase in enthusiasm from smart money lately. There were 36 hedge funds in our database with AutoZone, Inc. (NYSE:AZO) positions at the end of the previous quarter. At the end of this article, we will also compare AutoZone, Inc. (NYSE:AZO) to other stocks, including Canadian Pacific Railway Limited (USA) (NYSE:CP), Boston Scientific Corporation (NYSE:BSX), and PPL Corporation (NYSE:PPL) to get a better sense of its popularity.

If you’d ask most market participants, hedge funds are perceived as unimportant, old investment tools of years past. While there are greater than 8000 funds in operation at present, we hone in on the moguls of this club, approximately 700 funds. These money managers shepherd bulk of the hedge fund industry’s total capital, and by shadowing their best equity investments, Insider Monkey has formulated a few investment strategies that have historically outpaced the S&P 500 index. Insider Monkey’s small-cap hedge fund strategy outrun the S&P 500 index by 12 percentage points per year for a decade in their back tests.

Keeping this in mind, we’re going to take a look at the key action regarding AutoZone, Inc. (NYSE:AZO).

How have hedgies been trading AutoZone, Inc. (NYSE:AZO)?

Heading into Q4, a total of 39 of the hedge funds tracked by Insider Monkey held long positions in this stock, an increase of 8% from the previous quarter. With the smart money’s positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their stakes substantially (or already accumulated large positions).

Of the funds tracked by Insider Monkey, David Cohen and Harold Levy’s Iridian Asset Management has the largest position in AutoZone, Inc. (NYSE:AZO), worth close to $163.3 million, accounting for 1.4% of its total 13F portfolio. Coming in second is Marshall Wace LLP, led by Paul Marshall and Ian Wace, holding a $118.3 million position; the fund has 1.5% of its 13F portfolio invested in the stock. Other peers with similar optimism include D E Shaw, Richard Chilton’s Chilton Investment Company and Ken Griffin’s Citadel Investment Group.

Consequently, key hedge funds were leading the bulls’ herd. Renaissance Technologies assembled the largest position in AutoZone, Inc. (NYSE:AZO). Renaissance Technologies had $30.2 million invested in the company at the end of the quarter. Peter Muller’s PDT Partners also initiated a $28.4 million position during the quarter. The other funds with brand new AZO positions are Brian Taylor’s Pine River Capital Management, David Costen Haley’s HBK Investments, and Charles Anderson’s Fox Point Capital Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as AutoZone, Inc. (NYSE:AZO) but similarly valued. These stocks are Canadian Pacific Railway Limited (USA) (NYSE:CP), Boston Scientific Corporation (NYSE:BSX), PPL Corporation (NYSE:PPL), and Energy Transfer Equity, L.P. (NYSE:ETE). This group of stocks’ market caps matches AutoZone, Inc. (NYSE:AZO)’s market cap.

As you can see, these stocks had an average of 32 hedge funds with bullish positions and the average amount invested in these stocks was $1.74 billion. That figure was $1.22 billion in AutoZone, Inc. (NYSE:AZO)’s case. Canadian Pacific Railway Limited (USA) (NYSE:CP) is the most popular stock in this table. On the other hand, PPL Corporation (NYSE:PPL) is the least popular one with only 23 bullish hedge fund positions. AutoZone, Inc. (NYSE:AZO) 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. In this regard, Canadian Pacific Railway Limited (USA) (NYSE:CP) might be a better candidate to consider a long position.