Is CACC Stock A Buy or Sell?

Our extensive research has shown that imitating the smart money can generate significant returns for retail investors, which is why we track nearly 900 active prominent money managers and analyze their quarterly 13F filings. The stocks that are heavily bought by hedge funds historically outperformed the market, though there is no shortage of high profile failures like hedge funds’ 2018 losses in Facebook and Apple. Let’s take a closer look at what the funds we track think about Credit Acceptance Corp. (NASDAQ:CACC) in this article.

Is CACC stock a buy? Credit Acceptance Corp. (NASDAQ:CACC) shares haven’t seen a lot of action during the second quarter. Overall, hedge fund sentiment was unchanged. The stock was in 29 hedge funds’ portfolios at the end of December. Our calculations also showed that CACC isn’t among the 30 most popular stocks among hedge funds (click for Q4 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 Perrigo Co Plc (NYSE:PRGO), TopBuild Corp (NYSE:BLD), and Mattel, Inc. (NASDAQ:MAT) to gather more data points.

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 197% since March 2017 and outperformed the S&P 500 ETFs by more than 124 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.

Glenn Greenberg of Brave Warrior Capital

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, the CBD market is growing at a 33% annualized rate, so we are taking a closer look at this under-the-radar hemp stock. We go through lists like the 10 best biotech stocks under $10 to identify the next stock with 10x upside potential. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our website. Now let’s check out the recent hedge fund action regarding Credit Acceptance Corp. (NASDAQ:CACC).

Do Hedge Funds Think CACC Is A Good Stock To Buy Now?

Heading into the first quarter of 2021, a total of 29 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 0% from the previous quarter. On the other hand, there were a total of 31 hedge funds with a bullish position in CACC a year ago. With hedgies’ sentiment swirling, there exists a select group of noteworthy hedge fund managers who were boosting their stakes significantly (or already accumulated large positions).

Among these funds, Gobi Capital held the most valuable stake in Credit Acceptance Corp. (NASDAQ:CACC), which was worth $208.9 million at the end of the fourth quarter. On the second spot was Brave Warrior Capital which amassed $157.6 million worth of shares. BloombergSen, Cantillon Capital Management, and Abrams Bison Investments 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 Gobi Capital allocated the biggest weight to Credit Acceptance Corp. (NASDAQ:CACC), around 16.97% of its 13F portfolio. Abrams Bison Investments is also relatively very bullish on the stock, designating 6.68 percent of its 13F equity portfolio to CACC.

Since Credit Acceptance Corp. (NASDAQ:CACC) has witnessed bearish sentiment from the smart money, logic holds that there lies a certain “tier” of fund managers who sold off their entire stakes in the fourth quarter. It’s worth mentioning that Matthew Hulsizer’s PEAK6 Capital Management cut the largest stake of all the hedgies tracked by Insider Monkey, valued at close to $7.1 million in stock, and Peter Muller’s PDT Partners was right behind this move, as the fund said goodbye to about $1.2 million worth. These transactions are interesting, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks similar to Credit Acceptance Corp. (NASDAQ:CACC). We will take a look at Perrigo Co Plc (NYSE:PRGO), TopBuild Corp (NYSE:BLD), Mattel, Inc. (NASDAQ:MAT), Devon Energy Corporation (NYSE:DVN), Western Alliance Bancorporation (NYSE:WAL), Targa Resources Corp (NYSE:TRGP), and LG Display Co Ltd. (NYSE:LPL). This group of stocks’ market caps are closest to CACC’s market cap.

View table here if you experience formatting issues.

As you can see these stocks had an average of 25.4 hedge funds with bullish positions and the average amount invested in these stocks was $371 million. That figure was $771 million in CACC’s case. Devon Energy Corporation (NYSE:DVN) is the most popular stock in this table. On the other hand LG Display Co Ltd. (NYSE:LPL) is the least popular one with only 7 bullish hedge fund positions. Credit Acceptance Corp. (NASDAQ:CACC) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for CACC is 62. 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 30 most popular stocks among hedge funds returned 81.2% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 26 percentage points. These stocks gained 12.2% in 2021 through April 12th and beat the market again by 1.5 percentage points. Unfortunately CACC wasn’t nearly as popular as these 30 stocks and hedge funds that were betting on CACC were disappointed as the stock returned 6.3% since the end of December (through 4/12) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 30 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

Disclosure: None. This article was originally published at Insider Monkey.